CFG – Linear Fixed Rate Instruments

This function demonstrates cash flow generation for linear fixed rate instruments, such as loans. For the financial positions from integrated data sources, different rules will be used to generate the periodic principal and interest payments in each case, according to their product properties specified in the function Financial Positions. The cash flow generation is commonly triggered by certain events. Therefore, during input the Join Events and Positions function is chosen. On the Input tab, the fields Amortizing Type and Interest Rate Type are used to filter for desired entries. By selecting the amortizing types “3”, “4”, “5” and “6” and interest rate type “FX” (fixed rate) respectively, the input entries are limited to linear fixed rate instruments.

For demonstration purposes, the following rules are defined:

  • Rule R1 – Principals by Payment Rate is set to rule type “Flow Generation” on level 0. Cash flows are generated according to the predefined periodic payment rate. The selection condition “Periodic payment rate greater than 0” is used in this rule. Rule R1 has a line LP – Principal Payment of line type “Periodic Fixed Rate Flow”, which distributes the principal to all payment periods using the given periodic payment rate.

  • Rule R1I – Interests is set to rule type “Rate Modelling” on level 1. It is executed after rule R1. It takes the result from rule R1 as input to produce periodic interests using the period beginning balance, which is determined by the start amount of a loan and the previous principal payments. It has a line L1 – Interests calculated by given Interest Rates of line type “Periodic Fixed Interest”.

  • Rule R2 – Principals by Even Distribution is set to rule type “Flow Generation” on level 0. It generates cash flows by evenly distributing principal amounts. The selection parameter “Periodic payment rate equal to 0” is used in this rule. It selects the disjoint subset of rule R1 from the input function. Rule R2 contains the following lines:

    • L1 – Disbursement of line type “Single Flow” produces the disbursement cash flow of loans according to related events.

    • L2 – Principal Payment of line type “Periodic Fixed Even Flow” distributes the amount (start amount – end amount) evenly to all payment periods.

    • L3 – Final Repayment of line type “Single Flow” produces the final repayment on the end date specified by the end amount of the position.

  • Rule R2I – Interests is set to rule type “Rate Modelling” on level 1. It is executed after rule R2 and uses the result of rule R2 as input to produce periodic interests using the period beginning balance determined by the start amount of loans and previous principal payments. It has a line L1 – Interests calculated by given Interest Rates of line type “Periodic Fixed Interest”.