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/BA1/VC_TF4_IR - Edit Reference Interest Rates and Yield Curves

/BA1/VC_TF4_IR - Edit Reference Interest Rates and Yield Curves

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In this Customizing activity, you create reference interest rates and yield curve types.

A reference interest rate is used to store interest rates. The interest rate is defined as a percentage for a reference interest rate and for a specific date. It uses the interest rate conditions defined for the reference interest rate. Interest rate conditions include the currency, day count convention, calendar, payment frequency, term, and any working day rules. You need to specify these conditions as well as a reference interest rate ID.
In the application, you can assign specific values for specific days to the reference interest rates.
  • Prefix for reference interest rates
Assign a prefix to the category Overnight Index Swaps for Central Bank Interest Periods.
You can use yield curve types for market segmentation. For example, yield curve type 1 contains the yield curves for the swap market while yield curve type 2 is used for the yield curves of the bond market.
Within a given yield curve type, you can define a yield curve for each currency. Each yield curve then has a yield curve structure. You can assign any number of reference interest rates to a yield curve structure. When you assign reference interest rates, you give the yield curve structure a relative time period that is derived implicitly from the (relative) terms specified for the reference interest rates. The transfer of interest rates for the reference interest rates on a key date allows the system to generate yield curves for this key date. To start with, these curves contain only the real-life values entered (that is, the values represented as points). By interpolating, however, it is possible to calculate interest rates at any other points on the term axis.

For more information, see Market Data → Interest on SAP Help Portal.

Note:Yield curves have interest rate conditions similar to those of the reference interest rates. However, if an application such as Profit Analyzer accesses yield curves, it always reads an interest rate with the interest rate conditions defined for the yield curve and not those defined for the reference interest rate.

You have defined at least one market data area in the Customizing activity Create Market Data Area.

  1. Select the market data area for which you wish to create reference interest rates and yield curve types.
  1. If you have already created reference interest rates, the system displays a list of these. Select the reference interest rate in question, and choose Goto -> Details to go to the detailed screen of that reference interest rate. If you want to create a new reference interest rate, choose New Entries. The detailed screen appears automatically.
  2. Enter an ID and short description for the reference interest rate.
Define conditions for the reference interest rate:
  • Currency

  • Number of working days for interest fixing

  1. If you have already created spread types, the system displays a list of these. If you want to create a new spread type, choose New Entries.
  2. Enter an ID and description for the spread type.
  1. Enter an ID and short description for the yield curve type.
  2. Note that the only yield curve category available at present is Yield Curve.
  3. Select a yield curve type, and switch to the Yield Curves view by selecting the Yield Curves folder icon in the dialog structure on the left.
  4. If you have already created yield curves for the selected yield curve type, the system displays them in a list. Select the yield required curve, and choose Goto -> Details to view the detail screen. If you want to create a new yield curve, choose New Entries and the system automatically displays the detail screen.
  5. Select the currency for which you want to define a yield curve.
  6. Define interest rate conditions for the yield curve. For each yield curve, you can enter information, such as the following:

  • Yield curve type

  1. If you want to create the interest rate conditions for another currency for the yield curve, choose Next Entry.
  2. Go to the Points for Yield Curves view. On this screen, you can assign reference interest rates as points on the yield curve in question.
  3. Make sure you select reference interest rates that are intended for use as points on the yield curve in question.
    Note: You can use intraday reference rates only for yield curves that can be used for intraday rates.
Reference interest rate name   Currency Day Count Convention Term
EUR 01 Year Middle   EURO Act/360 1 year
EUR 02 Years Middle   EURO Act/360 2 years
EUR 03 Years Middle   EURO Act/360 3 years

Act/360
Reference interest rate name   Interest Rate Key Date
EUR 01 Year Middle   3.5% 2001-01-01
EUR 02 Years Middle   3.9% 2001-01-01
EUR 03 Years Middle   4.5% 2001-01-01

4.5%
Yield Curve Type Currency Reference Interest Rates
Swap EURO EUR 01 Year Middle
  EUR 02 Years Middle
  EUR 03 Years Middle

On the basis of this data, you would have the following yield curve on January 1, 2001:

Yield curve type: Swap

Currency: EURO

Date: 2001-01-01

Interest Rate Date Number of Days Par Rate Discount Factor
2002-01-01 365 3.5000000 0.966183575
2003-01-01 730 3.9000000 0.926197152
2004-01-01 1,095 4.5000000 0.875447720






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