Methods for Cash Flow Refinement

Definition

Methods that, at runtime, change financial transactions and financial instruments after they have been selected from the Source Data Layer (SDL), and in this way prepare them for the analysis process.

Use

Bank Analyzer uses cash flow refinement methods in the following applications:

●      Strategy Analyzer

●      Fair Value Server

●      Cash Flow Hedge Analysis

The due date scenario cash flow refinement method is used only in Strategy Analyzer and Cash Flow Hedge Analysis. You use the due date scenario cash flow refinement method to simulate the "maturity" of account balances, and to apply this simulation before the financial transactions in question are actually analyzed. Similarly, the other cash flow refinement methods prepare the financial transactions and financial instruments for the Bank Analyzer analyses. The settings made in Customizing define which application can use which cash flow refinement methods.

The system calls the cash flow refinement methods by means of the method schema, in which multiple cash flow refinements methods are grouped together. Therefore, you assign only the method schema, and not the individual cash flow refinement methods, to the Bank Analyzer applications. Since the selection and the order of the cash flow refinement methods is largely defined for the individual applications, SAP delivers suitable method schemas.

Integration

The cash flow refinement methods are applied to the valuation structure, which contains all the information that is needed to measure financial transactions, financial instruments, or subcontracts. There are two main types of cash flow refinement method:

●      Modification of the valuation structure

Some of the methods for cash flow refinement only modify the content of the valuation structure. This is the case in the cash flow filter refinement method, which you use to remove certain cash flows from the valuation structure.

●      Creation of multiple valuation structures

Other cash flow refinement methods generate multiple valuation structures from one valuation structure. This is because later evaluations require a particular business view of the financial transaction or financial instrument in question, which can be mapped only be means of two or more valuation structures. The cash flow splitting refinement method creates a separate valuation structure for each splitting level and splitting value, for instance.

Control Parameters

You use the control parameters to define how cash flow refinement methods are to be used. You do this by entering in the control parameters the respective cash flow refinement method for the valuation rule. This enables you to treat certain groups of financial transactions or financial instruments in a particular way. You configure the methods for cash flow refinement in Customizing for Bank Analyzer under Processes and Methods ® General Calculation and Valuation Methods ® Cash Flow Refinement ® Method Schemas. You make the settings that are specific to valuation rules from within the method environment under Processes and Methods ® General Calculation and Valuation Methods ® Mapping and Manipulation Methods ® Edit Method Environments.

The system calls some of the cash flow refinement methods more than once.  An example is market data determination. Strategy Analyzer calls this cash flow refinement method once before cash flow splitting, and again after cash flow splitting. This enables you to assign different market data to each valuation structure generated in cash flow splitting. Configuration values are used for these cash flow refinement methods to tell the system when to call the methods.

Enhancement

SAP delivers the cash flow refinement methods that are required for the applications in Bank Analyzer. However, you can create your own custom methods for cash flow refinement. You do this using a BAdI, which is available in Customizing for Bank Analyzer, and for which you can store implementations. You can find this BAdI in Customizing under Processes and Methods ® Cash Flow Refinement ® Method Schemas ® BAdI: Refine Valuation Structures.

Example

SAP provides the following methods for cash flow refinement:

Method ID	Method Name	Function
1005	Breaking Down of Implied Options	The system breaks down financial transactions whose interest rate conditions contain variable components, and hence implied options, into their component parts. This enables the price calculator to price the component parts as options.
1010	Due Date Scenarios	The system applies the specified due date scenarios to the balance in question in order to simulate the maturity of account balances.
1011	Market Data Scenarios	The system creates additional valuation structures from the valuation structure of the transaction or position in question, and based on the scenario set. It creates new valuation structures for the current market data set, and for all market data scenarios that the transferred scenario set contains. The only difference between the new valuation structures and the original valuation structure is the market data that they contain.
1012	Cash flow fixing	The system determines future cash flows with variable interest rates on the basis of the market data and market data scenarios.
1013	Interest capitalization	The system recalculates the cash flows and the nominal amount for loans for which an interest capitalization is agreed instead of an outgoing interest payment. From a technical point of view, on the payment date the system generates two cash flows of the same amount, each of which has a different sign (+/-). The cash flows are a nominal cash flow and an interest cash flow, and both describe the interest that is to be capitalized.
1014	Zero Conditions	For loans, the system displays the interest as zero for specific periods. One period is between the conclusion of the contract and the first interest rate condition period. The other is between the last interest condition period and the final repayment.
1015	Interest Calculation Methods	The system applies one interest calculation method to all transactions. Here the system adjusts only the interest rates; the actual amounts of interest remain the same.
1016	Cash flow splitting	The system creates new risk objects for the current transaction or position for all the splitting levels that are specified in the splitting environment. The splitting level and splitting value are listed in the risk objects, and the transaction or position cash flows are adapted as required.
1017	Cash flow filter	The system deletes cash flows from the valuation structure as required.
1020	Cash flow determination	The system determines cash flows for loans with unscheduled repayment options or call options.
1030	Distribution of the Premium/Discount	The system distributes premiums and discounts to the interest payment dates of the relevant transactions.
1040	Rollover	Depending on the setting, the system rolls cash flows over the actual end of the term of the financial transaction.
1060	Generation of hypothetical derivatives	The system generates a hypothetical derivative in order to test the fair value effectiveness for cash flow hedging relationships.
1070	Generation of par bonds	The system generates a par bond in order to prepare for the calculation of the hedge adjustment for the hedge items and hedging instruments in portfolio fair value hedging relationships.
1100	Market Data Assignment	The system derives the market data set that is required for valuing the transactions and positions. without any information about the cash flow view and the cash flow splitting.

 

SAP delivers method schema CFHA1 for Cash Flow Hedge Analysis. Method schema CFHA1 contains a selection of the predefined cash flow refinement methods listed above. For more information, see Method Schemas.