Net Interest Income Evaluation 

Use

The system represents the net interest income of the bank in a defined maturity band. The net interest income is the part of the payments belonging to a transaction that results when interest is calculated on the nominal capital. By comparing net interest income on the basis of current price parameters and market data scenarios, this evaluation shows you the effects of different perspectives on the bank’s net interest income.

 

Features

The net interest income evaluation has the following features:

·       In the net interest income evaluation, the system displays the following: balance sheet volume, product interest rate, opportunity interest rate, interest revenue for the product interest and opportunity interest, net interest margin, absolute and relative net interest income, and the profit or loss from the mismatch spread.

·       You can use different market data scenarios and scenario progressions to display the net interest income.

·       The system always shows the profit or loss from the mismatch spread and the net interest margin for the net interest incomes.

·       Currency gains/losses

The net interest income evaluation includes transactions and their committed capital.

 

For all options, with the exception of caps and floors, you can define how the net interest income is to be taken into account in the net interest income evaluation. You do this by setting the Delta indicator For more information, see the Settings for Gap Analysis document.

Whether or not an accrual is required for the net interest income of an option depends on the delivery type of the underlying.

An accrual is not required for the interest revenue or expense of options with cash settlement. The net interest income is effective on the due date only and is, therefore, accounted for completely in the period in which the due date falls. In this case, the net interest income corresponds to the intrinsic value of the option.

For options with physical delivery, the underlying is realized after the option is exercised. An accrual may or may not be required, depending on the underlying. If an accrual is made for the net interest income of the underlying, the same applies to the option, and vice versa.