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1. Pricing Execution End Figure 1 Business Process Task Flow Diagram 2 2 Features in Scope 2 2 1 Default Parameters Default parameter specification involves specifying general parameters for obtaining the transfer price and exposure price which are the outputs of the pricing process Specifying default parameters is a 3 step process involving the following Default Parameters Default Adjustments Oracle Financial Services Software Confidential Restricted 10 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 H Default Costs 2 2 2 Product Parameters Product parameter specification involves specifying the parameters adjustments and costs which are applicable to a given product currency combination for the purpose of computing risk pricing Specifying product parameters is a 5 step process involving the following 1 Specification of product details Target RAPM specification Adjustment specification Cost specification SA ou SC ES Conditional parameter specification 2 2 3 Pricing Definition Pricing definition refers to defining the process of defining parameters required to carry out pricing Pricing definition is always preceded by Reference Data Management Pricing definition involves specifying the following Pricing Details Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer
2. In this document a Note is represented as shown below Important or useful information has been represented as a Note Oracle Financial Services Software Confidential Restricted 8 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 1 Introduction Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 enables banks to assess the cost and risk added to their portfolio by each new loan thereby price the loan appropriately Traditionally banks have adopted a uniform loan pricing policy which does not take into account the incremental risk that the bank was taking on its books of account of the new loan This results in a less than optimum loan price which is not sufficient to cover the additional risk Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 addresses this need by estimating the transfer rates capital charges and the corresponding price to be charged for the new exposure It estimates the cash flows from each new loan and calculates the risk adjusted performance measures RAROC and SVA in order to measure the returns generated from a loan by considering the risk added by them It enables banks to identify good credits and avoid bad credits The primary aim of this release is to have a common application which covers the online funds transfer pricing TPOL functionality and risk based pricing functionality The features o
3. 55 Other Adjustments CI Ss Breakage Charge JO CostSpecification omAMeedCes 8 BENI OIM CI E e MEC PO CIN gt gt Conditional RAPM Target RAROC and Target SVA gt gt Conditional Adjustments Liquidity Adjustment Basis Risk Pricing Incentives Other Adjustments and Breakage Charge gt gt Conditional Costs Allocated Cost Option Cost User Defined1 and User Defined 2 gt gt Amortization Type Non Amortizing gt gt Adjustable Type Fixed gt gt Compounding Basis Simple gt gt Interest Payment Timing Arrears gt gt Rate Rounding Type No Rounding E DI DK MT TT Lm AnorizationTem TT Oracle Financial Services Software Confidential Restricted 37 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 gt gt Rate Set Lag 0 Months bei DTS ss Tease Dicom CIN El CIT A METETE CIN MN ECC CIN MET CIN MN ECETIA 9 Ss Breakage Changes 0 MEU CIN MN CTI CIN MN EITC CIN MN INCAUTOS 9 Capital Computation Specify When capital charge computation is specified expected loss is obtained unexpected loss and obligors rating as inputs MECO E HoEweedies A 2 Unexpected toss O 5 Oigo Rating T gt gt Obligor is Rated gt gt Need to specify the Rating Type Internal or External Rating Source and Rating gt gt Obligor is Unrated gt gt All icons specific to the rating should get disable RAPM Calcula
4. 1 6 Calculate Interest Expense cash flows for 12 Months Compounding Rate Balance Depending upon the condition it falls in e Interest Income calculations For Floating Interest Rate payment frequency is greater than O and less than 12 and repricing frequency is greater than payment frequency Consider financial element id 430 from fsi_o_process_cashflows for calculations For Floating Interest Rate payment frequency is equal to 12 and repricing frequency is greater than 12 Consider financial element id 60 and one year cash flow date from fsi_o_process_cashflows for calculations For Floating Interest Rate payment frequency is equal to O and repricing frequency is greater than O and less than 12 Consider financial element id 250 and cash flow date is greater than as of date against repricing balance from fsi_o_process_cashflows for calculations For Floating Interest Rate payment frequency is greater than 12 and repricing frequency is greater than payment frequency Consider financial element id 60 and one year cash flow date from fsi_o_process_cashflows for calculations H Interest Income Logic For Interest Income calculations are as follows 1 Floating Interest Rate where payment frequency is greater than to 0 and less than 12 and repricing frequency is greater than payment frequency Scale Up Logic Sum up the interest income for the number of rows generated by the Cash Flow Engine where cash flow Da
5. 2012 Oracle and or its affiliates All rights reserved No part of this work may be reproduced stored in a retrieval system adopted or transmitted in any form or by any means electronic mechanical photographic graphic optic recording or otherwise translated in any language or computer language without the prior written permission of Oracle Financial Services Software Limited Due care has been taken to make this Oracle Financial Services Oracle Financial Services Pricing Management Capital Charge Component User Guide and accompanying software package as accurate as possible However Oracle Financial Services Software Limited makes no representation or warranties with respect to the contents hereof and shall not be responsible for any loss or damage caused to the user by the direct or indirect use of this User Manual and the accompanying Software System Furthermore Oracle Financial Services Software Limited reserves the right to alter modify or otherwise change in any manner the content hereof without obligation of Oracle Financial Services Software Limited to notify any person of such revision or changes All company and product names are trademarks of the respective companies with which they are associated Oracle Financial Services Software Confidential Restricted 81
6. 60 and one year cashflow date from fsi_o_process_cashflows for calculations For Floating Interest Rate payment frequency equal to O and repricing frequency greater than 0 and less than 12 Consider financial element id 250 and cashflow date greater than as of date against repricing balance from fsi_o_process_cashflows for calculations For Floating Interest Rate payment frequency greater than 12 and repricing frequency greater than payment frequency Consider financial element id 60 and one year cashflow date from fsi o process cashflows for calculations Interest Expense Logic For Interest Expense calculation 1 Fetch data for accrual basis from table fsi_m_prod_characteristics and compounding frequency in months from fsi_compound_basis_mls table For Business Day 252 as Accrual Basis fetch data for holidays from fsi_holiday_detail and fsi_holiday_master for calculations 2 Calculate Compounding per payment frequency Payment Frequency Compounding Frequency 3 If FTP is calculate fetch data from fsi m query pricing table from funding charge column When FTP is specify fetch data from fsi m pricing detail table from funding charge column 4 If Accrual Basis is Actual Actual Actual 360 Business Day 252 Actual 365 Then Calculate Rate per Payment FTP Rate Accrual Basis 12 Payment frequency or Calculate Rate per Payment FTP Rate Accrual Basis 12 Repricing frequency Else For other Accrual Bas
7. Currency li Created By Creation Date Last Modified By Last Modified Date A dl L L Direct credit substitutes Afghanistan Afghani PRICING 9 24 2010 13 18 17 PRICING 10 21 2010 12 57 51 Direct credit substitutes US Dollar PRICING 1011 2010 14 17 46 PRICING 10 21 2010 17 53 56 Documentary Credits collateralised Brazil Real PRICING 9 24 2010 19 38 44 PRICING 9 24 2010 19 38 44 Documentary Credits collateralised British Pound PRICING 10 21 2010 12 58 27 PRICING 10 21 2010 12 58 27 Documentary Credits collateralised US Dollar PRICING 10 1 2010 14 19 06 PRICING 10 1 2010 16 03 19 Education loans Botswanian Pula PRICING 9 27 2010 12 38 14 PRICING 9 27 2010 12 38 14 d Education loans Afghanistan Afghani PRICING 10 20 2010 15 45 36 PRICING 10 22 2010 14 09 08 Education loans US Dollar PRICING 10 11 2010 19 29 56 PRICING 10 11 2010 19 29 56 Guarantee US Dollar PRICING 9 28 2010 18 32 46 PRICING 9 29 2010 13 15 44 Home Loans Mortgage Algerian Dinar PRICING 9 29 2010 13 39 36 PRICING 9 29 2010 13 39 36 Home Loans Mortgage US Dollar PRICING 10 1 2010 14 19 41 PRICING 10 1 2010 14 19 41 Home Loans Mortgage Andorran Peseta PRICING 9 29 2010 13 43 51 PRICING 9 29 2010 13 43 51 Lease Afghanistan Afghani PRICING 10 19 2010 19 48 53 PRICING 10 19 2010 19 48 53 Line of Credit Algerian Diner PRICING 9 29 2010 13 45 23 PRICING 9 29 2010 13 45 23 Line of Credit US Dollar PRICING 10 1 2010 14 20 18 PRICING 10 22 2010 13 20 55 Loan Commitment Afghanistan Afghani PRICING 9
8. Status Created By Creation Date Last Modified By Last Modified Date ST PF 0 RF PF Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 21 07 38 PRICING 40 22 2010 15 00 12 ST PF gt RF 12 Relationship Manager 1 Secured Lending US Dollar Scenario NII Failed PRICING 10 22 2010 19 54 20 PRICING 10 22 2010 20 12 57 ST PF RF 0 Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 19 36 18 PRICING 10 22 2010 14 56 19 ST RF PF O lt PF lt 12 Relationship Manager 1 Secured Lending US Dollar Capital Charge Failed PRICING 10 20 2010 19 33 57 PRICING 10 22 2010 16 33 57 ST RF gt PF 0 lt PF lt 12 Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 19 31 42 PRICING 10 21 2010 17 51 49 ST RF gt PF 0 lt PF lt 12 A A Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 19 54 15 PRICING 10 21 2010 13 54 13 ST RF PF 12 Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 21 25 43 PRICING 10 21 2010 13 56 08 STRF lt PF RF 12 O PF lt 12FLR Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 21 2010 17 37 38 PRICING 10 22 2010 19 21 46 STRF PF RF 0 O PF 12 A A Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 19 32 24 PRICING 10 21 2010 13 57 49 STRF PF RF 0 O lt PF lt 12FIR Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 21 2010 13 58 03 PRI
9. 10 2 ST RF lt PF RF 0 O lt PF lt 12 AJA Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 19 32 24 PRICING 10 2 STRF PF RF 0 O lt PF lt 12 FIR Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 21 2010 13 58 03 PRICING 10 2 STRF PF RF 0 0 lt PF 12 FLR Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 21 2010 14 31 34 PRICING 10 2 TESTING RF 0 floating Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 21 2010 17 53 31 PRICING 10 2 Customer 3 Local intranet Figure 12 Pricing Summary Main Page The main screen displays two sections as follows Search Pricing Summary Search should be enabled on the following information e Pricing Name e Product Relationship Manager Customer On entering any of the above information the entire list of products are displayed Oracle Financial Services Software Confidential Restricted 52 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 3 Pricing Management Microsoft Internet Explorer DER Pricing Management User PRICING Connected To PRICING ORACLE Pricing Summary Search Name Folder PRICINGSEG ze Relationship Manager Product Customer amp Pricing Summary a 1to 12 of 12 Name Relationship Manager Product Currency
10. 18 Repayment Schedule Details The repayment schedule is shown in the above section Date Represents the dates on which repayment is carried out Repayment amount The amounts that are repaid at regular intervals If Define Repayment Option is selected the dates in the schedule is selected from the Date browser 7 1 9 Capital Charge Parameters Capital Charge Computation page is used to define Basel Expected Loss and Unexpected Loss which becomes an input to RAROC and SVA computation You can either enter the information or use Oracle Financial Services Basel II Application to work out the information In Capital Computation section you first select the option to specify or to calculate the capital charge If you select specify capital charge as the option the capital computation method information gets disabled and no selection is possible But expected loss unexpected loss and fee amount information can be entered by you Oracle Financial Services Software Confidential Restricted 59 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer Details Capital Computation Capital Charge O Specity O Calculate Capital Computation Method Expected Loss Fee Amount Unexpected Loss Figure 19 Capital Computation section Capital charge specify If you select calculate capital charge as the option
11. 21 2010 19 45 59 PRICING 9 21 2010 19 45 59 Loan Commitment Euro European EMU PRICING 10 18 2010 12 26 58 PRICING 10 18 2010 12 26 59 Loan Commitment US Dollar PRICING 10 7 2010 17 46 15 PRICING 10 7 2010 17 56 44 Loan Commitment Albanian Lek PRICING 9 24 2010 12 37 48 PRICING 10 1 2010 16 01 38 Performance Based Letters of Credit US Dollar PRICING 9 29 2010 18 36 28 PRICING 929 201 018 36 44 2 Product Parameter Summary 1to 20 of 31 D Assumption Specifications 18 Products Daily Queries Pricing On entering Product and Currency information in the Search section the entire list is displayed All the newly defined products are displayed in this screen The following icons are present in the summary screen e Add New View Edit Delete Export Number of records per Page The summary screen displays the following information Product Currency Created By Creation Date Last Modified By Last Modified Date All the above information displayed in the main page gets fetched from the definition page Oracle Financial Services Software Confidential Restricted 47 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 1 Search Performs Search 2 New Allows you to define new rule 3 View Allows you to view a
12. Calculate Product Properties Ea Main Amortization Type Non Amortizing Adjustable Type Other Adjustable Accrual Basis Actual Actual Interest Payment Timing Interest In Arrears Rate Rounding Type No Rounding Rate Rounding Factor amp Terms Amortization Term Rate Set Lag 0 Months Tease Period 0 Months Tease Discount amp Other Details Apply al Adjustments Percentage Costs Percentage Liquidity Adjustment Allocated Costs Basis Risk Option Cost Pricing Incentives User Defined 1 Other Adjustments User Defined 2 Save Price Cancel Figure 25 Transfer Pricing Parameters sectionA mortization Type The Amortization Type can be one of the following Conventional Fixed Conventional Adjustable Level Principal Non Amortizing List of user defined Payment Patterns The default value is Non Amortizing Adjustable Type The Adjustable Type Code can be one of the following Oracle Financial Services Software Confidential Restricted 64 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 e Fixed e Adjustable e List of user defined Repricing Patterns The default value is fixed Accrual Basis The accrual basis determines how interest is calculated The options are 30 360 Actual Actual Actual 360 Actual 365 30 365 30 Actual The default value is Actual Actual Compounding Basis The compounding basis determi
13. Flow Engine is used by the ALM FTP applications FTP calculations are based on the process flow followed within the Oracle Transfer Pricing Online application Exposure pricing and capital calculations are based on the process flow followed within OFSAAI Run Rule Framework Pricing Management Application uses the functionalities of the OFSAAI platform e OFSAAI information is available through API s Common objects like hierarchy browser based on dimension Data filter and formula builder is available from the OFSAAI platform and can be used in the Pricing Manager application Computation of funding charges and minimum required rate for each product are calculated by the engine underlying the current Oracle Transfer Pricing Online application Capital charges are calculated using the rules configured using OFSAAI The Pricing Manager application provides pre configured Rules or Runs as per the regulatory capital approach specified under the Basel Accord NII is configured using a separate component The component uses CFE generated cash flow for interest income and executes interest expense calculation in the same line as Interest Income computed by CFE RAROC or SVA would be configured using the OFSAAI Rule Run framework For RAROC two rules are created one for the base RAROC based on base interest rate Oracle Financial Services Software Confidential Restricted 70 User Guide Oracle Financial Services Pr
14. Guide H Document Conventions Scope of the Guide The objective of this document is to provide a comprehensive working knowledge to the user on Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 This document is intended to help the user understand the key features and functions of Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 and use the application effectively Audience This User Guide is intended for the following audience e First time user Customer Functional Engineering Group e Product Management Group e Software Quality Assurance SQA Group Project Management Team Senior Management How to Use this User Guide The information in this User Guide is divided into the following chapters Chapter 1 Introduction The main objective of this chapter is to introduce the user to the application Chapter 2 Understanding the Application The main objective of this chapter is to introduce the user to the Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 and explain its features and functionalities Chapter 3 Application Components List The main objective of this chapter is to explain the components of the application Chapter 4 Product Use Cases The main objective of this chapter is to explain all the possible combinations of fund transfer pricing capital computation and risk adjusted perfo
15. Income Cash flows for 12 Months Compounding Rate Balance Depending upon the condition it falls in 3 2 5 Fee Income For Off Balance sheet products or fee based products since the bank charges only a fee consider fee income for RAROC and SVA computation Fee income is captured as user input from front Oracle Financial Services Software Confidential Restricted 23 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 end 3 2 6 Allocated Cost Allocated cost is the amount of non interest costs attributed to the loan These non interest costs arise from operations which include employee salaries loan servicing costs marketing expenses and so on This is specified as part of the Oracle Financial Services Pricing Management Capital Charge Component User Interface as a percentage of the exposure amount This is captured as a percentage of exposure in default and product screen of the Pricing Manager application or entered as revised information in Transfer Pricing parameters tab of pricing For RAROC and SVA calculation allocated cost is converted to amounts by multiplying allocated cost with exposure amount and processed 3 2 7 Expected Loss Expected Loss data is expected either as user input information or as a Pricing Manager application output Expected loss is captured as user input from the front end If you choose to calculate as an option in capital charge expected loss i
16. Manager Product Name Product Type Currency 7 1 7 Exposure Parameters Exposure Details In Exposure Parameter section first specify the exposure details You are expected to provide all the information related to the exposure All fields are mandatory to be updated for the calculations Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer Details 4 Exposure Details Exposure Amount Exposure Start Date Fixed Exposure Maturity Date Interest Rate Q Rate in Spread in bps Compounding Basis Simple Repricing Frequency 1 Months v Floating Rate Benchmark Downward sloping yield for 13 month Payment Frequency 1 Months w Save Price Cancel Figure 16 Exposure Detail The following information is expected to be entered or selected in the main tab Exposure Amount specify the amount which is to be priced Exposure Start Date Start Date is the date on which the exposure was issued to the customer It can be selected from the Date Browser Start date captures the notional start date for the exposure Exposure Maturity Date Maturity Date specify the date on which the exposure will mature and full repayment is due It can be selected from the Date Browser Oracle Financial Services Software Confidential Restricted 56 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Repricing Frequen
17. RAROC has been achieved If Base RAROC is less than Target RAROC o Increase interest rate by 1 for fixed rate product and 100bps spread for floating rate product o Repeat Step 3 except calculate Base RAROC and SVA task as mentioned in Step 3 using the new interest rate Store the new NU arrived by repeating Step 3 in a separate column o Calculate new RAROC using the second RAROC rule and the new NII formula for base RAROC and the second one used to calculate Rate to meet Target RAROC should be the same If Base RAROC is greater than Target RAROC Oracle Financial Services Software Confidential Restricted 26 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 o Decrease interest rate by 1 for fixed rate product and 100bps spread for floating rate product o Repeat Step3 except Calculate RAROC and SVA as mentioned in Step 3 using the new Interest rate Store the new NII arrived by repeating Step 3 in a separate column o Calculate new RAROC using the second RAROC tule Formula for base RAROC and the second one used to calculate Rate to meet Target RAROC should be the same 5 Calculate Rate to meet Target RAROC e Check if target RAROC is in between the base RAROC and the new RAROC calculated using the second RAROC rule Jf target RAROC is equal to the new RAROC calculated using the second RARCC rule o Report the Interest Rate used in the second RAROC calculation as
18. Rating Issuer Rating Mitigant Value E Debt Security Collateral Corporate A AAA CAR 40000 O Credit Derivative Credit Derivative Bank A LAA ICR Nettable Liablilties Nettable Liabilties Customer A Figure 22 Risk Mitigant Oracle Financial Services Software Confidential Restricted 62 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 2 Mitigant Details Mitigant Onew Mitigant 9 Existing Mitigant Mitigant Name Debt Security Mitigant ID Mitigant Type Collateral Collateral type Debt Security Start Date 10 06 2010 78 Maturity Date 1003 2013 78 Mitigant Issuer Corporate A Issuer Type Bank issuer Rating Source Care Issuer Rating AAA CAR Mitigant Rating MTM Revaluation Frequency Daily Mitigant Value 40000 Currency Indian Rupee Lo Cancel Figure 23 Mitigant Details The above section is available for both Existing and New Mitigants On checking the existing Mitigants enter the Mitigant name and all the other information wherever the data exists If you click new mitigant you are expected to pass a new entry and also select from the existing dimension values If you select Mitigant Type as Collateral from the list of values shown in the check box then all the information in the section gets enabled except Mitigant Rating If you select any other information other then Collateral from the list of values in the check box then the following inform
19. be disabled if you choose to input the transfer pricing rate In this case the database should save a value of 0 Months Amortization Term The amortization term definition requires input of a unit an integer value greater than zero and selection of a multiplier The multiplier can be in Days e Months e Years The default is 1 month The Amortization Term is disabled if you choose to input the transfer pricing rate In this case the database should save a value of 0 Months Rate Set Lag The Rate Set Lag defines a lag period for the interest rate lookup date The rate set lag definition requires input of a unit an integer value greater than or equal to zero and selection of a multiplier The multiplier can be in Days D Months D Years The default value is O Months Tease Period If you choose to include a tease period the tease period definition requires input of a unit an integer value greater than or equal to zero and selection of a multiplier The multiplier can be in Days Months Years The default value is O Months that is if Adjustable Type Code Adjustable This entry should be disabled if the Adjustable Type Code is a user defined pattern or fixed In this case save a value of 0 Months to the database Since the default value for Adjustable Type Code is fixed the Tease Period by default is disabled Tease Discount If you enter a non zero tease period enter a tease discount value T
20. from interest rate captured from the pricing manager screen and an interest expense cash flow calculated based on FTP rate generated by running the TP online engine Cash Flow Engine is triggered twice First with the base interest rate and the second with the scenario rate of an increase or decrease in interest rate so that new cash flow gets generated for a new FTP rate and a new NII is considered for the new RAROC FTP calculation is performed twice First with the base interest rate and the second with the scenario rate so that a new FTP rate and a new NII is considered for the new RAROC e RAROC RARCC is computed twice First time RAROC is computed based on the base data Second time RAROC is computed based on new NII calculated by a shift in interest rate or the spread for floating rate product The second RAROC along with the base RAROC is used to calculate Rate to meet Target RAROC The two RAROC outputs are compared with the Target RAROC and the corresponding two Interest Rates are interpolated or extrapolated to achieve the Target RAROC 3 2 12 Steps in RAPM Processing The following steps are involved in RAPM processing 1 Check if Capital Charge option is Specify or Calculate If Capital Charge option is selected as Specify RAPM calculation should not be triggered Populate reporting table If Capital Charge option is selected as Calculate Populate Stage Tables Execute Capital Charge Run Popula
21. gt gt Transfer Pricing Rule Transfer Pricing Rule 1 gt gt Prepayment Rule Prepayment Rule 1 gt gt Default Transfer Pricing IRC Monte Carlo Test gt gt Default Transfer Pricing Method Cash Flow Weighted Term Discounted Cash flow gt gt Adjustment Rule Adjustment Rule 1 gt gt Stochastic Rate Indexing Rule Stochastic Rate Indexing Rule 1 1 2 Aer E gt gt Option Cost gt gt Specify or 0 0000 Calculate ai gt gt User Defined 1 0 0000 gt gt User Defined 2 0 0000 Product Parameter Specification Default Value Meme 0 Oracle Financial Services Software Confidential Restricted 31 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 gt gt Currency Target RAPM Specification gt gt Target RAROC in 2 2 gt gt Basis Risk gt gt Pricing Incentives gt gt Other Adjustments AA LN LN OSA Ee A LN LN serene 000008 A NNNM AWO 9 Onin REES REES ER MA AN EAE NN gt gt Conditional RAPM Target RAROC and Target SVA gt gt Conditional Adjustments Liquidity Adjustment Basis Risk Pricing Incentives Other Adjustments and Breakage Charge gt gt Conditional Costs Allocated Cost Option Cost User Defined1 and User Defined 2 2 4 2 5 EE Leer ES mer gt gt Original Term 0 Months gt gt Amortization Term 0 Months Rate Set Lag 0 Months omes 00 AT jomewem DI Oracle Financi
22. the Rate to meet Target RAROC o For Floating Rate it is the first cash flow rate used plus the spread In case of fixed rate product it is the new rate used f target RAROC is in between the base RAROC and the new RAROC calculated using the second RAROC rule o Use Interpolation and find the interest rate which equals Target RAROC o Report the interest rate which equals the Target RAROC as the Rate to meet Target RAROC o For Floating Rate it is the first cash flow rate used plus the spread In case of fixed rate product it is the new rate used Jf target RAROC is in beyond the base RAROC and the new RAROC calculated using the second RAROC rule o Use Extrapolation and find the interest rate which equals Target RAROC o Report the interest rate used in the second RAROC calculation as the Rate to meet Target RAROC o For floating rate it is the first cash flow rate used plus the spread For fixed rate product it is the new rate that is used 3 2 13 End to End Example for Pricing Management An end to end case for pricing management is embedded below as an example for reference Ix H End to End RAPM Example xls Oracle Financial Services Software Confidential Restricted 27 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 4 Product Use Cases The product use cases for Pricing Manager application explains all the possible combinations of fund transfer pricing ca
23. the capital computation method becomes available as drop down for you to select You need to specify the seniority and enter data for fee amount If you select the option to calculate capital charge specify the above additional information The above information opens up dynamically on the selection of calculate capital charge Exposure seniority Fee Amount Exposure seniority is a drop down box with the following data Senior Subordinated Fee Amount is a user entry field and should appear irrespective of Capital Charge option to specify or calculate Facility Rating Facility Rating section opens up only for Non Retail Customers If the Customer Type selected is Individual or any other Retail Facility Rating section is displayed The first data in the Facility Rating section is Exposure Rated or Unrated Exposure rating details is a radio icon which allows you to select either of the following e Exposure is Rated Exposure is Unrated If the exposure is rated the above rating details section opens up with rating source and rating information for you to select If the exposure is rated the reference details section in customer details page is not displayed But if the exposure is unrated then the Customer Details page enables the reference details section Once you select the exposure is rated and then the Rating Type data should be updated Rating Type includes Internal Rating External Rating If you select in
24. we will fetch data for holidays from fsi_holiday_detail and fsi_holiday_master for calculations Calculate Compounding per payment frequency Payment Frequency Compounding Frequency If FTP is calculate fetch data from fsi m query pricing table from funding charge column When FTP is specify fetch data from fsi m pricing detail table from funding charge column If Accrual Basis is Actual Actual Actual 360 Business Day 252 Actual 365 Then Oracle Financial Services Software Confidential Restricted 17 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Calculate Rate per Payment FTP Rate Accrual Basis 12 Payment frequency or Calculate Rate per Payment FTP Rate Accrual Basis 12 Repricing frequency Else For other Accrual Basis Calculate Rate per Payment FTP Rate Accrual Basis Payment Frequency oWhen payment frequency is equal to O or greater than 12 pass payment frequency as 12 for calculating Rate per Payment oWhen repricing frequency is less than payment frequency and repricing frequency is greater than 0 and less than 12 pass original repricing frequency instead of payment frequency as input for calculating Rate per Payment oWhen repricing frequency is less than payment frequency and repricing frequency is greater than 12 pass repricing frequency as 12 instead of payment frequency for calculating Rate per Payment oWhen Accrual Basis
25. 2 Payment frequency or Calculate Rate per Payment FTP Rate Accrual Basis 12 Repricing frequency Else For other Accrual Basis Calculate Rate per Payment FTP Rate Accrual Basis Payment Frequency oWhen payment frequency is equal to O or greater than 12 pass payment frequency as 12 for calculating Rate per Payment oWhen payment frequency is equal to 0 and repricing frequency is greater than 0 and less than 12 pass original repricing frequency instead of payment frequency as input for calculating Rate per Payment oWhen Accrual Basis is Business day 252 while calculating the actual number of days take into account the number of holidays referring to table fsi_holiday_detail and fsi_holiday_master for that particular duration and subtract the number of holidays to arrive at actual duration 6 Calculate Compounding Rate according to compounding basis If Compounding Basis At Maturity or Simple Compounding Rate Rate per Payment If Compounding Basis Continuous Compounding Rate Exp Rate per Payment 1 If Compounding Basis Daily Monthly Quarterly Semi Annual and Annual Compare Compounding Basis with payment frequency If Compounding Basis greater than or equal to payment frequency Compounding Rate Rate per Payment Else Compounding Basis less than Payment Frequency 1 Rate per Payment Compounding per Payment Frequency Compounding per payment frequency 1 7 Calculate Interest
26. CING 10 22 2010 18 36 08 STRF PF RF 0 O lt PF lt 12FLR Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 21 2010 14 31 34 PRICING 10 22 2010 18 42 55 TESTING RF 0 floating Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 21 2010 17 53 31 PRICING 10 21 2010 17 54 19 SJ Local intranet Figure 13 Pricing Summary Screen The pricing defined is displayed in the summary page The following icons are present in the summary screen Add New View e Edit Delete Pricing report The Pricing Summary Page displays the following information Name Relationship Manager Product Currency Status Created By Creation Date e Last Modified By e Last Modified Date Oracle Financial Services Software Confidential Restricted 53 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 All the above information displayed in the main page is fetched from the definition page 2 New Allows user to define new rule 2 selected from the list selected from the list 5 Delete Allows user to delete a defined rule Active only when an existing rule is selected from the list Check Box Allows user to select a rule Multiple rule select is not allowed Check Box next to Name allows Select All All rules selected can only be deleted or exported No of records A
27. Details The description of each of the following components of pricing definition is as follows Pricing Details The first step to be followed prior to specifying pricing details is the selection of one of the following options Existing Customer New Customer Based on this selection the pricing details are automatically populated or have to be specified Pricing details include the following Name Customer ID Customer Name Customer Type Relationship Manager e Product Name Product Type Currency Exposure Parameters Oracle Financial Services Software Confidential Restricted 11 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Oracle Financial Services Pricing Management Capital Charge Component computes the exposure price based on the parameters specified as part of the exposure parameters tab In Exposure parameters the following parameters need to be specified Exposure Details Repayment Schedule in case of structured products Capital Charge Parameters The following capital charge parameters are specified Expected Loss Unexpected Loss Seniority Senior Subordinated Fee Amount Transfer Pricing Parameters Oracle Financial Services Pricing Management Capital Charge Component computes the fund transfer rates based on the parameters specified in the FTP details tab The following details are required to be provided D FTP
28. E 74 Eigureido Transfer Pricing Analysiscs ada pe daa EARL 74 Fipute 37 Capital Charge Analysis ainiin 75 Figure 38 Standalone Exposure Capital iissassussaoesasesateodanteg idonei pd d nudi dedi 75 Figure S0RARM Analia inn tete endet aes meee mea tances 75 Fipure 40 Scenario EE 75 Figure 41 Obligor RAPM iz etui tette tege ta 76 Oracle Financial Services Software Confidential Restricted V User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 List of Tables Tablet Document CONVE a ieanarnaen aane meae nnaunnanu mannm nane ped 8 KEE RE EE 15 Table 2 Net Interest Income rtr treat did eg loto ti cu oerte ie oie tiores orte 16 Table 3 User Privileges Capital Chatges issiissatstssassacssscsissarssssastatusscnussatssnensbsatacsstvadatossendssotbescausdatessensssatbsnannndatsens 41 Fable 4 User EE 42 Table 5 Action Icons Product Parameter Summary Page ENEE 48 Table 6 Action Icons Pricing Summary Screen EEN 54 Oracle Financial Services Software Confidential Restricted vi User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 About the Guide This manual provides a brief description of the purpose the audience the document accessibility the references the organization of the document and conventions followed in this document The topics in this section are organized as follows Scope of the Guide D Audience e How to use this User
29. Joe Smith 01 04 2009 Peter A 01 22 2009 Figure 31 Pricing Report Navigation When you click Pricing report the following screen is displayed Oracle Financial Services Software Confidential Restricted 72 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 A Pricing Report Microsoft Internet Explorer Pricing Details Name Customer Name Product Name Currency Exposure Details Exposure Amount 50 00 000 00 Tenure in Days 821 Exposure Pricing Transter Pricing Analysis Capital Charge Analysis Funding Charges in 96 RAROC in i Shareholder Value Added i Pricing Report Relationship Manager Customer Type Product Type Rate of Interest in 96 Fee Income Minimum Required Rate in 96 Target RAROC in 96 Target SVA Rate to meet Target RAROC in 96 Return 2 Local intranet Figure 32 Pricing Report Pricing report consists of Pricing details Exposure Details Exposure Pricing and Pricing Analysis 9 1 1 Pricing Details Pricing 1 Relationship Manager Anne Harris Customer Name Reserv e Bank Customer Type Central Bank Product Name Product 1 Product Type Bullet Loan Indian Rupee Currency Figure 33 Pricing Details In Pricing Details the following information is displayed Name Relationship Manager Customer Name Customer Type Product Product Type Currency Oracle Financial Services So
30. NSION EE Product PP TAME ii tee RR e ORO RR eda ee A A Aa Product Parametros das PTU CUSCO AAA RE AA A AAA N X ea A RAPM Processing Repayment Schedule Report InfortnatiOri cette i et denim t A eode bes ditus Risk Mitigaht5 iie ida Risk Adjusted Performance MeasUres 3 inei eie ee E ORIENTE IRE HERR RUE 14 Risk Adj sted Return on Capitali ccn eec tcr aaa 15 Scenario REI EE Sec rity CONSI ON Sii AA AA T AAE EP e ERR C e SERERE PEE Y EE RENE E Shareholder Value Added Stochastic Rate Indexing Rule is as g s s vg Straight TAM EE Target RAPM Specification n e do 50 Technical Desi EE 72 ranster Pricing AnalVsiS unti eet AERA dt heel lesen 75 TEASER PRICE Measures nee ette teta ta d tet etae eG cee RB EE 13 Whanster Pricing Parameters e EIE eR IE EPIS REIR 12 65 Transfer Pricing Rules ecc ch IO t ce a t e RE cen i i e NI Ev t cp RR ERE NE E beta dx 46 Oracle Financial Services Software Confidential Restricted 80 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 ORACLE Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 User Guide March 2012 Version number 1 0 Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores CA 94065 U S A Worldwide Inquiries Phone 1 650 506 7000 Fax 1 650 506 7200 http www otacle com us industties financial services index html Copyright
31. Oracle Financial Services Pricing Management Capital Charge Component User Guide Release 6 0 March 2012 ORACLE FINANCIAL SERVICES User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Contents LIST OF FIGURES 4 RA BARA A DARA RA BARA RA ABRAM RRA ER i Re Rect IV LIST OF TABLES 0 necesa VI ABOUT THE GUIDE rehenes ee dieti eee aseo hood sadaa ioaea e eae ke doce ee eee neue ee eodd eaae ee eue d aded ege Regn 7 SCOPE OF THE GUIDE scents caged A sins uen e qu hee Dee UR eve 7 INUDIENGE E 7 HOW TO WSETHIS USER GUIDE lt 4 2h denia 7 DOCUMENT CONVENTIONS diras Poi past lA EE 8 1 INFRODUCTION E 9 2 UNDERSTANDING THE APPLICATION ccccccccccssssssssecccccceeeesssseseccccseeaassssseeeceeeeaes 10 2 1 BUSINESS PROCESS TASK FLOW eie ree rin EE eo ne ERR EPA SERERE e er RA aia 10 2 2 FEATURES IN SCOPE eer eroe poete inte E remus da es endo E 10 2 2 1 Default Parameters rec ete ttr ais 10 2 2 2 Ee ee e 11 2 2 3 Pricing Definition e ii dE 11 2 2 4 Pricing Execution iia di AA AAA EA Aa iiaia ia 13 2 2 5 Calculation Of Transfer PLiCe cccccccccsssssessssccecsssssesassececsssscnassesecssnsasaasesecsessauaansesecsessaaaaaesecsesansaanaess 13 2 2 6 Estimation of Capital Reouirement essen nnne enne tn anas nennen satanas sess essa saa a asas sse s sad a dann 13 2 2 7 Computation of Risk Adjusted Performance Measures esses esee eene nhan nnns en
32. Pricing Manager application are done using the following inputs from Exposure Detail Screen Rate of Interest Transfer Pricing Screen Fund Transfer Pricing Rate Target RAROC Target SVA and Allocated Cost Capital Computation Screen Fee Income E Default Parameter Specification Default Parameter Saar Values gt gt Transfer Pricing Rule Transfer Pricing Rule 1 gt gt Prepayment Rule Prepayment Rule 1 gt gt Default Transfer Pricing Monte Carlo IRC Test gt gt Default Transfer Pricing Cash Flow Method Weighted Term Discounted Cash flow gt gt Adjustment Rule Adjustment Rule 1 gt gt Stochastic Rate Indexing Stochastic Rate Indexing Rule 1 2 Default Costs gt gt Allocated Cost gt gt Option Cost gt gt Specify or Calculate gt gt User Defined 1 gt gt User Defined 2 Product Parameter Specification Esdr T Prodnr Deas 7 mcm 3 oem Sid 2 Target RAPM Specification gt gt Target RAROC nm 9 Tags va 0 9 3 Cost Specification L e Alocated oa 9 55 Onions 9 IU 35 User Define 9 55 UserDefined2 9 Oracle Financial Services Software Confidential Restricted 35 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 4 Conditional Parameter Specification ech gt gt Conditio
33. R MIBOR LIB Prime Lending Rate and so on The default should be the first IRC listed alphabetically 7 1 8 Repayment Schedule Details Repayment schedule is applicable only when the product type is selected as Structured Loan and the interest rate option is selected as Floating Rate Oracle Financial Services Software Confidential Restricted 57 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Pricing Details Customer New Customer O Existing Customer Customer Name Customer A Customer ID Customer Type Banks Relationship Manager Bank Manager zl Product Name Loan Commitment Product Type Structured Product Currency US Dollar Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer Details Exposure Details Exposure Amount Exposure Start Date 10 25 2010 79 Fixed Exposure Maturity Date 10 20 2015 78 Interest Rate Q Rate in 96 Spread in bps Compounding Basis Simple Repricing Frequency 1 Months wv Floating Rate Benchmark Treasury Index Repayment Schedule Details Schedule Generation Automatic Repayment Schedule Define Repayment Schedule Total No of Payments Pa Figure 17 Repayment Schedule Details screen Under Repayment Schedule Details section there are 2 options Automatic Generation of Repayment Schedule Define Repayment Schedule You have to select between Automatic Generation of Repayment Sc
34. Rate e Main e Terms H Other Details Customer Details The customer details refer to the financial and business details of the customer The following customer details are required to be provided Business Information Static Business Information Reference Issue Details Financial Information s EBDIT nterest Expenses Depreciation Tax Earnings after Tax EPS Long Term Debt Leverage Ratio Interest Coverage Ratio Debt Coverage Ratio Oracle Financial Services Software Confidential Restricted 12 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 e Borrower Details only for Individual Customer Type Occupation Age Gender Monthly Income Marital Status Number of Children Number of Dependents Number of Residential Properties Owned Number of Vehicles Owned Number of Land Owned 2 2 4 Pricing Execution Oracle Financial Services Pricing Management Capital Charge Component allows the pricing definition to be executed immediately on saving it in the same screen order to obtain the pricing report An icon for pricing execution is provided in the Pricing Definition screen which automatically creates a Run and executes it The Run execution status is displayed in a small window which is displayed on executing a pricing definition On successful completion of the pricing execution an icon for launching the pricing report should be
35. acle Financial Services Pricing Management Capital Charge Component Release 6 0 7 1 2 Default Parameter Screen The first screen for Pricing Manager is Default Parameters screen Default parameter specification involves specifying general parameters for processing of Pricing Management Default Parameter specification involves specifying the following sections e Default Parameters e Default Adjustments e Default Cost The information entered and saved acts as default information for processing of the Pricing Manager application and is to be defined irrespective of the user being only a TPOL user or a capital charge user or both This is a onetime set up activity and is done at an administrative level This screen can be accessed from Pricing Manager Tab gt Parameter Specification gt Default Parameters Pricing Management User PRICING Connected To PRICING Financial Services Applications Default Parameter Specification o EP Master Maintenance El Pricing Management Default Parameters if PM Maintenance Product Dimension Transfer Pricing Rule c1 E Parameter Specifications Prepayment Rule Stochastic Rate Indexing Rule G Default Parameters Default Transter Pricing IRC Treasury Index EM Adjustment Rule TPOL ADJ1 Product Parameters 1 Cash Flow Duration GQ Assumption Specifications Default Transfer Pricing O Mutipe Rate Single Rate QD Products Method P Daily Queries Y Constant R
36. al Services Software Confidential Restricted 32 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Other Details 5 ouem ame IN DN E CI a 9 DN E CI EE es Kg gt gt User Defined 2 Capital Charge Calculate The capital computation for expected loss and unexpected loss in Basel using the following inputs from Capital Charge Parameter Screen 1 Capital Charge Parameters Default Value Capital Computation Ex ME Capital Computation Method Method 1 RER EES Ieper Facility Rating gt gt Exposure is Rated gt gt Need to specify the Rating Type Internal or External Rating Source and Rating gt gt Exposure is Unrated gt gt All icons specific to the rating should get disable 1 3 Obligor Rating gt gt Obligor is Rated gt gt Need to specify the Rating Type Internal or External Rating Source and Rating gt gt Obligor is Unrated gt gt All icons specific to the rating should get disable R C EAS dee Mitigant mW mmm 7000 pe S pe emmer re e NE A esee AA emer AA Oracle Financial Services Software Confidential Restricted 33 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 gt gt Mitigant Rating gt gt MTM Revaluation Frequency Daily S gt gt Mitigant Value 0 0000 gt gt Currency Indian Rupee Pricing Manager Calculate The calculation for Net Interest Income NII c
37. ameters are specified Credit Score 1 Operator 1 Credit Score 2 Operator 2 The operator will be a drop down selection of the following o lt D lt D e gt D gt Based on the criterion type selected the condition is specified For example if the criterion is selected as loan amount then a simple condition may be specified as Loan Amount gt 1000 lt 5000 A nested condition may be specified as Loan Amount gt 1000 lt 5000 where Credit Rating includes AAA AA and A Once the conditions are defined then the values for target RAPM adjustments and costs are provided at the most granular level of the condition In the simple condition illustration it will be specified at the level of the loan amount while in the nested condition it will be at the level of credit rating 7 1 4 Pricing Parameters Pricing Parameters refers to the process of defining parameters required to carry out risk pricing in order to obtain transfer rates capital charges and exposure price An existing Risk Pricing Definition is allowed to be edited as well as deleted Editing a Risk Pricing Definition may result in the definition being saved as the same definition or a save as as an entirely new definition Oracle Financial Services Software Confidential Restricted 51 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 3 Pricing Management Microsoft Internet Explorer BEE Pricing Ma
38. ate 590000 Coupon Rate ES Pricing A Default Adjustments in Liquidity Adjustment Basis Risk Pricing Incentives Other Adjustments A Default Costs in Allocated Cost 10 0000 User Defined 1 10 0000 Option Cost 9 Specity 10 0000 O Calculate User Defined 2 10 0000 save Cancel Figure 3 Default Parameter Specification In the Default Parameters Screen enter the following information from the list mentioned below Product Dimension Transfer Pricing Rule Prepayment Rule Stochastic Rate Indexing Rule e Default Transfer Pricing Interest Rate Code IRC Adjustment Rule Default Transfer Pricing Method Product Dimension The product dimension is the chart of accounts concept followed in OFSA Oracle Financial Services Software Confidential Restricted 44 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 analytics that is used throughout the system The product dimension selection controls the listing of products and therefore controls all other data except worksheets concept used in OFSA TP online stored and used within the system The product dimension selection is listed as a dropdown list of all product dimensions The names of the product dimensions is retrieved from the table OFSA_CATALOG_OF_LEAVES A selection for the product dimension is required Transfer Pricing Rule The Transfer Pricing methodologies determine how transfer rates a
39. ating section opens up 2 Pricing Details Customer O New Customer Obs isting Customer Customer Name Customer A Customer ID Customer Type Individual v Relationship Manager Bank Manager Los Product Name Loan Commitment Product Type Structured Product Currency US Dollar Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer Details amp Capital Computation Capital Charge O Specify 10 Calculate Capital Computation Method Seniority Senior Fee Amount amp Credit Score Credit Score i Figure 21 Pricing Details Obligor Rating section The obligor rating section opens up for all customers other than Individual and High Net Worth Individual Obligor Rating The first information in the section is a radio icon which allows you to select either Obligor is Rated Obligor is Unrated For Basel IRB approach for internal rating unrated customers cannot exist If the obligor is rated then the rating detail is displayed with Rating Source and Rating If the obligor is unrated then the rating details information is not displayed If you select obligor is rated then an input for Rating Type information is displayed Oracle Financial Services Software Confidential Restricted 61 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Rating Type includes Internal Rating External Rating If you select internal rating then the obligor ra
40. ation in the section is disabled Collateral Type e Issuer Rating MTM Revaluation Frequency Mitigant ID always appears in disable mode In case of new mitigant mitigant id appears blank Whereas in case of existing mitigants mitigant ID shows only fetched data 7 1 10 Transfer Pricing Parameters In Transfer Pricing section first select the option to specify or to calculate the transfer pricing rate It should be a radio icon In case you have selected calculate the following screen is displayed The following information is expected to be entered or selected in the main tab If you select the option to Specify FTP rate then enter the additional information as represented in the following figure Funding Charge Oracle Financial Services Software Confidential Restricted 63 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Minimum Required Rate Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer Details FTP Rate Specify O calculate Funding Charge in Minimum Required Rate in save Price Cancel Figure 24 Transfer Pricing Parameters Specify or Calculate Section If you select the option to calculate FTP rate then you are expected to enter information in Main Terms H Other Details Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer Details FTP Rate Ospecity O
41. ation opens up for all the customer types other than Individual and High Net Worth Individual amp Financial Information Information As On Interest Expenses EBDIT Tax Depreciation EPS Earnings After Tax Leverage Ratio Long Term Debt Debt Coverage Ratio Interest Coverage Ratio Figure 29 Financial Information The above information is entered for a customer type other than Individual and High Net Worth Individual Once entered it saves in a new table For an Individual and High Net Worth Individual customer type the following information needs to be entered Once entered the information saves in a new table Oracle Financial Services Software Confidential Restricted 68 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer Details amp Borrower details Information As On Occupation No of Dependents Age in years No of Residential Property Gender No of Vehicles Monthly Income Owns Land Marital Status Married Figure 30 Borrower Details 7 1 12 Scenario Analysis The purpose of Scenario Analysis is to state that if rating migration happens then what would the impact be on the final result In scenario analysis the Pricing Manager application does a rating migration of 1 grade up and 1 grade down only As of now no other change in scenario parameters or rating transiti
42. ble Negative Amortization Non Amortizing Rule of 78s Table 3 Net Interest Income 400 Net Interest Income Calculation Logic Follow the steps below for Net Interest Income Calculation Logic 1 Check for Tease Term logic 2 If Tease Term is zero compare repricing frequency with payment frequency else for Tease Term greater than zero 3 Compare Tease Term with payment frequency Oracle Financial Services Software Confidential Restricted 16 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Tease term logic is applicable across all scenarios for payment frequency and repricing frequency Scenario 1 Repricing frequency lt Payment frequency e Interest Expense calculations For Fixed Interest Rate Repricing frequency is equal to 0 always Payment frequency is greater than 0 and less than 12 Consider financial element id 60 and cashflow date greater than as of date from fsi_o_process_cashflows for calculations For Fixed Interest Rate Repricing frequency is equal to 0 always Payment frequency equal to 0 Consider financial element id 60 and one year cashflow date from fsi_o_process_cashflows for calculations For Fixed Interest Rate Repricing frequency is equal to 0 Always Payment frequency is greater than 12 Consider financial element id 60 and one year cashflow date from fsi_o_process_cashflows for calculations For Floating Interest Rate Repric
43. c rra iure sieut 52 Figure 13 Pricing Summary Screens eae ete rtt debt ite e eiat fe triti eiit t 53 Figurest4 Pricing De hato SECC s n vea eaedem a d e MR 55 Figure t5 Pricing Details sian aus uae nein eoe dendo dod Os 55 Figure 1 6 Pxpostite Detaili ii op noria ar i a i eene Denon epe DU Ea ae Ei ODER 56 Figure 17 Repayment Schedule Details screeti ice eei eaedem ete eese 58 Figure 18 Repayment Schedule Details ccoo idas 59 Figure 19 Capital Computation section Capital charge specify 60 Fipute 20 Facility Rating ate RHET DRE E A A ERA AS 60 Figure 21 Prcino BEE 61 Figure e Kee dais 62 Pigure 23 Mitigant RE 63 Figure 24 Transfer Pricing Parameters Specify or Calculate Section seen 64 Figure 25 Transfer Pricing Parameters Seton oia 64 Figure 26 Business Information nc dd ie e rers eruere eras 67 Figur 27 Reference IS8U6S qe needed AA A AAA eris cd 67 Figure 20 Reference ssuciDetallS a ee du ta MS AAA A RA ES 68 Figure29 pinancial dos AAA seb doen dde bgn epo pb sae 68 Figure 30 Borrower Details bie tunesopeo ene nene neneenemen eene nee Oe nane aie tia bs 69 Fig re 31 Pricino Report Navigation cicer n A 72 Figure 32 Pricing Reptile e 73 Fipure 33 Pricing Details ett tas 73 Oracle Financial Services Software Confidential Restricted iv User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Figure 34 Exposute Dil as 74 Fieute 55 Exposute
44. cted 29 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 1 3 Default Costs gt gt Allocated Cost gt gt Option Cost gt gt Specify or Calculate 0 gt gt User Defined 2 Product Parameter Specification Default Value Product Details LCLI MN NN wmmme AA n gt gt Target SVA gt gt Basis Risk gt gt Pricing Incentives gt gt Other Adjustments gt gt Breakage Charge Cost Specification 2 4 2 5 Conditional Parameter Specification gt gt Conditional RAPM Target RAROC and Target SVA gt gt Conditional Adjustments Liquidity Adjustment Basis Risk Pricing Incentives Other Adjustments and Breakage Charge gt gt Conditional Costs Allocated Cost Option Cost User Defined1 and User Defined 2 Exposure Amount jBewUuw Ierseng Biome Nai Dae mee Fern Jerez w Oracle Financial Services Software Confidential Restricted 30 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 If Fixed Specify a fixed rate 0 Floating Rate Spread 0 E Floating Rate Benchmark LIBOR Case 2 When Transfer Pricing is calculated Capital Charge is calculated and RAPM is calculated Transfer Pricing Calculate The calculation for Funding charge and Minimum Required Rate are done using transfer pricing engine FTP Engine Default Parameter Specification Default Value
45. cy Repricing frequency requires input of a unit an integer value greater than zero and selection of a multiplier Units The multiplier can be in Days Months Years The default is 1 Month Payment Frequency Payment frequency requires input of a unit an integer value greater than zero and selection of a multiplier Units The multiplier can be in e Days D Months D Years The default is 1 Month Interest Rate It specifies the rate which is supposed to be used for pricing calculations It can be of 2 types Fixed Rate Fixed rate is a single rate expressed in percentage terms When fixed rate option is selected Floating rate parameters and repayment schedule details is disabled Spread in bps Floating interest rate is expressed as a spread over a benchmark The spread value needs to be specified in 100 basis points It is the additional spread to be added to the rate from the Interest Rate Code The margin can be either positive or negative It has the format 99 9999 The default value for the margin is 0 0000 Floating Rate Benchmark The Interest Rate Code determines the Interest Rate Code to be applied for definition of the floating interest rate The selection should list all Interest Rate Codes sorted by name and code value depending on the currency selected in the pricing details Floating Rate Benchmark can be selected from the dropdown list Floating Rate Benchmark are the following LIBO
46. defined rule Active only when an existing rule is selected from the list 4 Edit Allows you to edit a defined rule Active only when an existing rule is selected from the list 5 Delete Allows you to delete a defined rule Active only when an existing rule is selected from the list 6 Export Export to PDF Active only when an existing rule is selected from the list Check Box Allows you to select a rule Multiple rule select is not 7 allowed Check Box next to Name allows Select All All Rules selected can only be deleted or exported 8 No of records per Allows you to define of records to be displayed in the Page page Three pre defined options of 5 7 and 10 are selectable User can also define this option Table 6 Action Icons Product Parameter Summary Page Product Detail The first tab in product parameters screen captures the information about product and currency combination 2 Product Parameter Specification Microsoft Internet Explorer Product Parameter Specification Product Parameter Summary gt Product Parameter Specification Definition Mode Product Details Product Name Currency Afghanistan Afghani Figure 6 Product Details The available product name can be selected from the product name browser and once the selection is made the corresponding currency needs to be selected from the currency browser Target RAPM Specification The target Risk Adjusted Performance Measures tab takes the inp
47. displayed along with the Run execution status 2 2 5 Calculation of Transfer Price Loan Cash Flows Cash flow calculation is essential for the estimation of the funding charges and NII for a given product and is done by using the Cash Flow Engine used by the Oracle Funds Transfer Pricing Application CFE breaks down each product into its component cash flows Transfer Pricing Measures The transfer pricing measures are calculated as per the procedure currently followed in the Oracle Transfer Pricing Online Application The following transfer pricing measures are calculated and provided as outputs Funding Charges e Minimum Required Rate 2 2 6 Estimation of Capital Requirement The contribution of each loan to the total capital to be held by the institution is calculated using both the regulatory and economic capital approaches The capital measures estimated by the Pricing Manager application are as follows e Expected Loss Unexpected Loss Risk Weighted Assets Oracle Financial Services Software Confidential Restricted 13 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 2 2 7 Computation of Risk Adjusted Performance Measures Exposure pricing involves calculation of 2 key risk adjusted performance measures which are Risk Adjusted Return on Capital RAROC and Shareholder Value Added SVA for each new loan The RAROC and SVA of a loan are computed for a horizon of one yea
48. e gt gt Mitigant ID pes Oracle Financial Services Software Confidential Restricted 28 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 gt gt Mitigant Type i gt gt Collateral type EA gt gt Start Date AA gt gt MaturityDate o o J gt gt Mitigant Issuer o o gt see 00 o Leien Rating o o gt gt Minigame Rating o o gt gt Ratingsource o o gt gt MTMRevaluation Frequency ity Jegen Value 0 0000 Indian gt gt Currency Rupee RAPM Calculate The calculation for Net Interest Income NII computation RAROC SVA and Rate to meet Target RAROC for Pricing Manager are done using the following inputs from Exposure Detail Screen Rate of Interest Transfer Pricing Screen Fund Transfer Pricing Rate Target RAROC Target SVA and Allocated Cost Capital Computation Screen Fee Income Default Parameter Specification Eos n 1 1 Default Parameter Default Values E AL gt gt Transfer Pricing Rule Transfer Pricing Rule 1 gt gt Prepayment Rule Prepayment Rule 1 NN Default Transfer Pricing IRC Test gt gt Default Transfer Pricing Method Cash Flow Weighted Term Discounted Cash flow gt gt Adjustment Rule Adjustment Rule 1 gt gt Stochastic Rate Indexing Rule Stochastic Rate Indexing Rule 1 peas Y EE AA REES REES Jemen ra gt Y Oracle Financial Services Software Confidential Restri
49. e Nt 2 8 tnt i ab i ena ain iei eta eiie 13 Conditional parameter Specification 2 nee epp HUP ERR BH BR RBS 51 Cost of Capital id EAT 25 Cost Sp cification EE 51 D Data MOCEI EEEE aii Default Adjustments deg s Be lo iss ec vi Default e Default Pas sia sabe Default Transfer Pricing Interest Rate Code ccccscsssscsssecsssessescsscecsssessessnsessuecsseesesseseuecsseessssssesesussssseesseesenessseesnssesenesenseseneess 47 Default Transfer Pricing Method eege SES va dis bb ep etis ioa 47 Detailed Design Middle bayet 5 i e e es e Ee See Rr e EE e ERREUR 72 E Expected LOSS uti NEESER Exposure Details allas us Exposure Parameters Exposure PfiCllg ii e eei A A ecc E te eec erede eerte F E 24 Fixed Rate cep rm 59 Floating Rate Benchmark erenn ec ec p RE coos eo e o en e P pt aM e FO M Te NR NE Ed gae ets 59 Fund TrarisferPricing e EET YR IEEE EUER VE ETE VER TE EROS TERR et 15 l Interest RATE a 59 L LC di aaa 13 Oracle Financial Services Software Confidential Restricted 79 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 N Net Interest INCOM ECs ii AA canes SAA AA A AAA AAA AA 16 O l i TEE 64 P Prepayment Rule Pricing Pricing Details Pricing Execution EMBED E ROG REEF UBI HU E Pricing Manager EE Pricing Te A Prod ct DIME
50. ee Income Yi 1 n Allocated Costs Xi 1 n Expected Loss Xi 1 n Capital Cost of Capital Oracle Financial Services Software Confidential Restricted 76 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Glossary ALM Allocated Cost CCF CFE Cost of Capital EAD EBDIT EL EPS Economic Capital Unexpected Loss Expected Loss FTP Fee Income IRB LGD NII Net Interest Income PD RAPM RAROC RBP Asset Liability Management Total value of direct and indirect costs like loan servicing costs employee salaries that is allocated to a loan Credit Conversion Factor Cash Flow Engine Cost of debt and equity finance for the business This is known as the weighted average cost of capital WACC Exposure at Default Earnings before Depreciation Interest and Tax Expected Loss Earnings per Share Amount of capital that is required to cover the unexpected losses arising on the loan in the next one year Amount of loss that is expected to occur on a loan over the next one year Funds Transfer Pricing Income generated by a loan in the next one year based on the fees charged Internal Ratings Based Approach Loss Given Default Net Interest Income Income generated by a loan in the next one year based on the interest charged net of the interest cost of funds Probability of Default Risk Adjusted Performance Measures Risk Adjusted Return on Capi
51. eroe Ad A ENEE ve cue ra ea ne eee eee an ea 70 9 REPORTING APPLICATION COMPONENT PRICING REPORT eeeeeeene 72 9 1 REPORT INFORMATION ce E 72 9 1 1 Pricing Details oat de tei A A d es A TE 73 9 1 2 Exposure Dieter Seen rr e rentre tees tria ea e Seb bu Dalee eh Se PU ee D rebos sal eee ARES 74 9 1 3 EXPOSUIE PLIGG ELE 74 9 1 4 Transfer Pricing Analysis en died tii tas Ho ce genae xeu Hd dades a EE baii 74 9 1 5 Capital Charge Anoalysis A dada disen 75 NN E 79 Oracle Financial Services Software Confidential Restricted iii User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 List of Figures Figure 1 Business Process Task Blood Eege 10 Figure 2 Pricing Management RHS Screen EENS 43 Figure 3 Default Parameter Specification sertis eriari ririri srao ie aros ar ie E 44 Figure4 Default Adjustments 2220 45 Figure 5 Default CostS viii nn A 46 Figure 6 Product Detatls ia A A A AAA A AA A OA A ded ied queden 48 Figure to Target RA DM Specific ON int 49 Figure 8 Adjustment Specification G Yo cacaos daa et 49 Figure 9 Cost Specification In Yo wssssssssssssssssisssasssisssasssssssassasaasassssatassatasbananbasvananaasssassagansaanieanassadasbagasdadbananazenaassanaaas 49 Figure 10 Conditional Parameter Specification 49 Figure 11 Conditional Parameter Sibling Selection esent tette 50 Fipute 12 Pricing Summary Main Page erret r
52. evel conditions or as nested conditions The process of specifying conditions involves the following The criterion type is selected as one of the following Loan Amount Maturity Credit Rating H Credit Score A http 10 1 84 74 70 1 780 PRICING fsapps precmer launch_add_sibling jsp infodom PRICING m ES 2 Criterion Type Selection Criterion On Loan Amount v Loan Amount Maturity 2 Criteria SelectiojCredit Rating Loan amp mount 1 Credit Score berator Loan Amount 2 Operator gt M gt v 3E Criteria Figure 11 Conditional Parameter Sibling Selection If the criterion type is selected as loan amount then the following parameters are specified Loan Amount 1 Operator 1 Oracle Financial Services Software Confidential Restricted 50 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Loan Amount 2 Operator 2 If the criterion type is selected as maturity then the following parameters are specified Maturity 1 Operator 1 Maturity 2 Operator 2 Period Period is selected as one of the following Days e Months D Years If the criterion type is selected as credit rating then the Credit Rating Browser is displayed and one or multiple credit ratings are selected The condition can be specified inclusive of or exclusive of the selected credit ratings If the criterion type is selected as credit score then the following par
53. f the Pricing Manager application are as follows Common user interface which captures the inputs required for both TPOL and Capital Charge calculations TPOL calculations are based on the process flow followed within the Oracle Transfer Pricing Online application Exposure pricing and capital calculations based on the regulatory capital approach as well as the economic capital approach and the process flow detailed in this document Common pricing report and BI analytics which display both the TPOL and Capital Charge outputs There is no modification in the cash flows and TPOL calculations currently followed in the Oracle Transfer Pricing Online application Oracle Financial Services Software Confidential Restricted 9 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 2 Understanding the Application 2 1 Business Process Task Flow This section briefly explains the end to end process flow of Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Oracle Financial Services Pricing Management Capital Charge Component business process flow consists of the following components Parameter Specification Pricing Definition e Pricing Execution The following diagram illustrates the High Level Process flow sat T Reference Data Management 1 Default Parameter Specification 2 Product Parameter Specification Pricing Definition
54. ftware Confidential Restricted 73 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 9 1 2 Exposure Details Exposure Amount Rate of Interest in Tenure Fee Income Figure 34 Exposure Details The following information is expected to be generated in this screen Exposure Amount It specifies the amount for which you have expected an exposure Rate of Interest in Rate It specifies the rate which is supposed to be used for pricing calculations It can be of 2 types Fixed Rate Fixed rate is a single rate expressed in percentage terms Floating Rate Floating interest rate is expressed as a spread over a benchmark Tenure Original term of the exposure 9 1 3 Exposure Pricing Funding Charges in Minimum Required Rate in RAROC in 96 Target RAROC in SVA Target SVA Rate to meet Target RAROC in 96 Figure 35 Exposure Pricing 9 1 4 Transfer Pricing Analysis All in Funding Charges Minimum Required Rate in 96 Liquidity Adjustment Basis Risk Pricing Incentives Other Adjustments Expected Loss Allocated Costs Capital Charges Option Cost User Defined1 i User Defined 2 Figure 36 Transfer Pricing Analysis Oracle Financial Services Software Confidential Restricted 74 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 9 1 5 Capital Charge Analysis Capita
55. he tease discount value has a valid range from 99 9999 to 99 9999 The default value for tease discount is 0 0000 This entry is disabled if the Adjustable Type Code 1s a user defined pattern or fixed or if the tease period is zero Under other details tab the required adjustments and cost parameters need to be specified in Oracle Financial Services Software Confidential Restricted 66 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 percentage terms Tables and columns from where information is expected in the section 7 1 11 Customer Details Business Information The section is enabled for all customer types except Individual or Retail Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer Details Business Information Country of Incorporation ii Industry All Industries Status of Listing Oves Ono Date of Listing Figure 26 Business Information The following information needs to be entered in the section Country of Incorporation Industry Status of Listing Date of Listing Country of incorporation is a list of value selection from Dim Geography On click of icon a new pop up window should open up which should display all the descriptive values existing in the dimension table Industry is also a list of value selection from Dim Industry On click of icon a new pop up window should open up which should display a
56. hedule and Define Repayment Schedule using a radio icon When Define Repayment option is selected then only total number of payments field are activated Total number of payments field requires input of a unit an integer value greater than zero Once you enter the data and click the arrow icon next to total number of payments it will create the payment schedule with blank data In define repayments you need to enter the data and the corresponding payment When Automatic Generation of Repayment Schedule is selected the total number of payments field is also available You have to enter each of the values manually Based on the information entered in Automatic Date and Payment Generation section the Pricing Manager application generates the defined payment dates and amounts Increment type You have 2 options that can be selected from a drop down menu Single Multiple In case of Single you chose any one increment method type But in case of multiple you can choose multiple increment method provided the sum of increment amount totals to exposure amount less start payment When option chosen is multiple the following fields have to be manually filled in Total number of payments requires input of a unit an integer value greater than zero Start Date It has to be selected from the date browser in mm dd yyyy format Default is mm dd yyyy Increment By requires input of a unit an integer value greater than zero and selection of a m
57. ication Components List The components of the Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 include the following Oracle Fund Transfer Pricing e Cash Flow Engine Yes e FTP engine Oracle Financial Services e NII Component No Pricing Management Capital e OFSAAI Rule Run Framework Charge Component e BI Dashboard Table 2 Application Components 3 1 Oracle Fund Transfer Pricing For Pricing Manager application an option either to specify or trigger the FTP engine from the Uls is provided If you trigger the FTP engine from the UI the calculation process would be the same as is carried out in FTP online for each product There exists no change in CFE or FTP engine from Pricing Management perspective 3 2 Oracle Financial Services Pricing Management Capital Charge Component Exposure pricing involves the calculation of 3 key Risk Adjusted Performance Measures RAPM for each new loan as follows Risk Adjusted Return on Capital H Shareholder Value Added e Rate to meet Target Raroc The RAPM elements are computed for a horizon of one year taking into consideration the expected income and costs of each new loan over the horizon Computation of RAROC and SVA should be achieved through Rules 3 2 1 Risk Adjusted Return on Capital RAROC Oracle Financial Services Pricing Management Capital Charge Component calculates the RAROC for each new loan A loan is priced
58. icing Management Capital Charge Component Release 6 0 captured from front end and the other for the scenario created on base interest rate so as to calculate interest rate to meet target RAROC Oracle Financial Services Software Confidential Restricted 71 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 9 Reporting Application Component Pricing Report 9 1 Report Information The pricing report is generated based on the information defined in the Pricing Manager UI s and also processed by various application components as part of the Pricing Manager application To access the pricing report the Pricing tab on the main screen of the Pricing Manager application needs to be clicked After selecting the exposure name for which the pricing report is required the Pricing Report icon is clicked Pricing Manager ORACLE d Pricing Manager E ig Parameter Specification 8 Default Parameters 1 ProduttRarameters Name E Relationship Manager Product d Currency Pricing Summary l Q Pricing List amer Rettonsi Manager Y bro Ju Jude Ji Last ieid KR Pricing 10 Eric Jones de z Smith T 11222009 E Pricing 9 Laura Moss Product 9 Joe Smith 0701 2009 m 112 2009 Pricing 8 Laura Moss Product USD RichardN 05 24 2009 Brian H 05 12 2009 E Pricing 7 Eric Jones Product USD Peter A 03 28 2009 Brian H 03 15 2009 T Pricing 6 Eric Jones Product 6 USD
59. in a manner that the Risk Adjusted Return on Capital RAROC of the loan is at least equal to the hurdle rate that is target RAROC RAROC should be reported in percentage terms Formula for RAROC is as follows RAROC Net Interest Income Fee Income Allocated Costs Expected Loss Total Capital 100 3 2 2 Shareholder Value Added SVA Oracle Financial Services Pricing Management Capital Charge Component calculates the SVA for each new loan SVA is in absolute terms and it refers to a value generated to shareholders from the underlying transaction Oracle Financial Services Software Confidential Restricted 15 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Formula for SVA is as follows SVA Net Interest Income Fee Income Allocated Costs Expected Loss Total Capital Cost of Capital 3 2 3 RAROC and SVA Elements RAROC and SVA depend on the following elements e Net Interest Income Fee Income Allocated Costs Expected Loss Total Capital Cost of capital 3 2 4 Net Interest Income NII NII is calculated for all the amortization codes mentioned in the following table except Rule 78 A year s Interest Income and Interest Expense for computing NII is required The Interest Income is calculated using the CFE Engine and Interest Expense is calculated using own component Conventional Fixed Conventional Adjustable Adjusta
60. ined within the transfer pricing module as Stochastic Rate Indexing rules Stochastic Rate Indexing rules assumptions are referenced when the option costs have to be calculated All the Stochastic Rate Indexing rules defined in the FTP are shown in the dropdown Default Adjustments The second section in the screen is default adjustment where the parameters that act as adjustment information for calculating FTP are specified Default Adjustments in Liquidity Adjustment 0 3400 Basis Risk 1 3000 Pricing Incentives 0 2500 Other Adjustments 1 0000 Figure 4 Default Adjustments Default Adjustment Specification The following default adjustments are specified Liquidity Adjustment e Basis Risk Oracle Financial Services Software Confidential Restricted 45 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Pricing Incentives Other Adjustments Default Costs The final section in the screen is the default cost where you specify the cost information which is applied to all the products by default unless further filtering is available at Product Currency level in Product Parameter screen amp Default Costs in Allocated Cost 10 0000 User Defined 1 10 0000 Option Cost 9 specify 10 0000 Calculate User Defined 2 10 0000 Save Cancel Figure 5 Default Costs Default Cost Specification The following default costs are specified e Allocated Cost Allocated cos
61. ing frequency is equal to 0 Payment frequency is greater than 12 Consider financial element id 60 and one year cashflow date from fsi_o_process_cashflows for calculations For Floating Interest Rate Repricing frequency equal to 0 and payment frequency is greater than O and less than 12 Consider financial element id 60 and cashflow date is greater than as of date from fsi_o_process_cashflows for calculations For Floating Interest Rate Repricing frequency is greater than O and less than 12 the expected output will not include opening balance financial element ID 60 and Net Interest Income financial element ID 430 and Payment Frequency is greater than Repricing Frequency Consider financial element ID 250 and cashflow date greater than as of date against repricing balance from fsi_o_process_cashflows for calculations For Floating Interest Rate Repricing frequency is greater than 12 the expected output will not include opening balance financial element ID 60 and Net Interest Income financial element ID 430 and Payment Frequency is greater than Repricing Frequency Consider financial element ID 250 and one year cashflow date from fsi_o_process_cashflows for calculations Interest Expense Logic For Interest Expense logic 1 Fetch data for accrual basis from table fsi_m_prod_characteristics and compounding frequency in months from fsi_compound_basis_mls table For Business Day 252 as Accrual Basis
62. is Calculate Rate per Payment FTP Rate Accrual Basis Payment Frequency When payment frequency is equal to 0 or greater than 12 pass payment frequency as 12 for calculating Rate per Payment When payment frequency is equal to 0 and repricing frequency is greater than O and less than 12 pass original repricing frequency instead of payment frequency as input for calculating Rate per Payment When Accrual Basis is Business day 252 while calculating the actual number of days take into account the number of holidays referring to table fsi_holiday_detail and fsi_holiday_master for that particular duration and subtract the number of holidays to arrive at actual duration 5 Calculate Compounding Rate on the basis of compounding basis If Compounding Basis At Maturity or Simple Compounding Rate Rate per Payment If Compounding Basis Continuous Compounding Rate Exp Rate per Payment 1 If Compounding Basis Daily Monthly Quarterly Semi Annual and Annual Compare Oracle Financial Services Software Confidential Restricted 21 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Compounding Basis with Payment Frequency If Compounding Basis greater than or equal to Payment Frequency Compounding Rate Rate per Payment Else Compounding Basis less than Payment Frequency 1 Rate per Payment Compounding per Payment Frequency Compounding per payment frequency
63. is Business day 252 while calculating the actual number of days take into account the number of holidays Referring to table fsi_holiday_detail and fsi_holiday_master for that particular duration and will subtract the number of holidays to arrive at actual duration 5 Calculate Compounding Rate on the basis of compounding basis If Compounding Basis At Maturity or Simple Compounding Rate Rate per Payment If Compounding Basis Continuous Compounding Rate Exp Rate per Payment 1 If Compounding Basis Daily Monthly Quarterly Semi Annual and Annual Compare Compounding Basis with Payment Frequency If Compounding Basis greater than or equal to Payment Frequency Compounding Rate Rate per Payment Else Compounding Basis less than Payment Frequency 1 Rate per Payment Compounding per Payment Frequency Compounding per payment frequency 1 6 Calculate Interest Expense Cash flows for 12 Months Compounding Rate Balance Depending upon the condition it falls in e Interest Income calculations For Fixed Interest Rate Repricing frequency is equal to 0 Always Payment frequency is greater than O and less than 12 Consider financial element id 430 from fsi_o_process_cashflows for calculations For Fixed Interest Rate repricing frequency is equal to 0 always Payment frequency is equal to 0 Consider financial element id 60 and one year cash flow date from fsi_o_process_cashflows for calcu
64. is greater than repricing Frequency Consider financial element ID 250 and one year cash flow date from fsi_o_process_cashflows for calculations Interest Income Logic For interest income logic follow the steps given below 1 For Fixed and Floating Interest Rate where repricing frequency is equal to 0 and payment frequency greater than O and less than 12 Scale Up Logic Sum up the interest incomes for the number of rows generated by Cash Flow Engine Where Cash flow Date is greater than as of date Financial element ID 430 and Floating Value gt 0 and scale it up till 12 months Using formulae Interest Income Count of rows Payment Frequency 12 Count of rows where Cash Flow Date is greater than as of date Financial element ID 430 and Floating Value gt 0 The above formula provides the total interest income cashflows for 12months 2 Fetch data for accrual basis from table fsi_m_prod_characteristics and compounding frequency in months from fsi_compound_basis_mls table For Business Day 252 as accrual basis fetch data for holidays from fsi_holiday_detail and fsi_holiday_master for calculations 3 Fetch Data for interest rate flag from fsi_m_pricing_details table If the flag is fixed 0 then fetch fixed interest rate data from fsi_m_pricing_details from fixed_rate column Otherwise if the flag is floating rate 1 fetch data for interest rate curve from fsi_m_prod_characteristics table from interest_rate_cd colu
65. l Calculations Capital Calculation Approach Figure 37 Capital Charge Analysis Standalone Exposure Capital Capital Cost of Capital In Risk Weighted Assets Figure 38 Standalone Exposure Capital Account Number Exposure ID Product Product Name used in Processing EAD Exposure Amount processed Expected loss Amount of loss that is expected to occur on a loan over the next one year Unexpected loss Losses above expected levels for which capital is calculated Risk Weighted Assets Risk weighted assets is a measure of the amount of a bank s assets adjusted for risk RAPM Analysis section Figure 39 RAPM Analysis Scenario Analysis Risk Unexpected Weighted RAROC in Assets Customer RatingTransition Expected Loss Shareholder Value Added Figure 40 Scenario Analysis Scenario Analysis gives an insight into the change that results from the customer rating taking a downward or upward trend For example If a customer is originally rated A under Scenario Analysis the effect of the rating moving up from A to AA as well as moving down from A to BBB can be understood by observing the change in values in the following parameters Expected loss Amount of loss that is expected to occur on a loan over the next one year Oracle Financial Services Software Confidential Restricted 75 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Unexpec
66. lations Oracle Financial Services Software Confidential Restricted 18 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 For Fixed Interest Rate repricing frequency equal to O always Payment frequency is greater than 12 Consider financial element id 60 and one year cash flow date from fsi_o_process_cashflows for calculations For Floating Interest Rate repricing frequency is equal to 0 and Payment frequency is equal to 0 Consider financial element id 60 and one year cash flow date from fsi_o_process_cashflows for calculations For Floating Interest Rate repricing frequency is equal to 0 and payment frequency is greater than O and less than 12 Consider financial element id 430 from fsi_o_process_cashflows for calculations For Floating Interest Rate repricing frequency is greater than O and less than 12 the expected output will not include opening balance financial element ID 60 and Net Interest Income financial element ID 430 and Payment Frequency is greater than repricing frequency Consider financial element ID 250 and cashflow date greater than as of date against repricing balance from fsi_o_process_cashflows for calculations For Floating Interest Rate repricing frequency is greater than 12 the expected output will not include opening balance financial element ID 60 and Net Interest Income financial element ID 430 and payment frequency
67. ll the descriptive values existing in the dimension table Status of Listing is a drop down and displays only two information Yes or No Date of Listing is a date selection from the date format Reference Issues If the facility is unrated then the Reference Issue page is enabled Reference Issues amp 11t010f1 efe Issue Name Issue Date Maturity Date External Rating Currency Claim Type Os yr debt security 10 25 2010 10 20 2015 AAA FIT US Dollar Long Term Figure 27 Reference Issues The main page should display the following information Issue Name Issue Date Maturity Date External Rating e Currency Claim Type Once you define the Add New screen and save it the main page should display the saved Oracle Financial Services Software Confidential Restricted 67 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 information with the above details The Add New icon opens up the below page Reference Issue Details Microsoft Internet Explorer Reference Issue Details Pricing Summary gt Pricing Definition gt Reference Issue Reference Issue Details Issue Name 5 yr debt security Issue Date 10 25 2010 78 Maturity Date 10 20 2015 Ka Claim Type O Short Term Long Term Currency US Dollar Seniority Senior Rating Source Fitch Ratings External Rating AAA FIT ok cancel Figure 28 Reference Issue DetailsFinancial Information The financial inform
68. llows user to define of records to be displayed in the page Three pre per Page defined options of 5 7 and 10 are selectable User can also define this option Table 7 Action Icons Pricing Summary Screen 7 1 5 Pricing Definition Pricing Definition involves specifying the following Common Information Pricing Definition Pricing Details Specific Tabs Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer Details Oracle Financial Services Software Confidential Restricted 54 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Pricing Definition Pricing Summary gt Pricing Definition Detinition Mode 2 Pricing Definition Name Description PRICINGSEG Access Type Read Only O Readhrite Folder Name 2 Pricing Details O New Customer O Existing Customer Customer Name Customer Type Relationship Manager Product Name Product Type Amortizing Loan Currency Afghanistan Afghani Exposure Parameters Capital Charge Parameters Transter Pricing Parameters Customer Details Exposure Details Exposure Amount Exposure Start Date Spread in Exposure Maturity Date Interest Rate e d bps Compounding Basis Simple Repricing Frequency 1 Months EN Floating Rate Benchmark Downward sloping yield for 13 month Payment Frequency 1 Months S Price Cancel Audit Trail User Comments amp Sy
69. mn and for interest margin from fsi_m_prod_characteristics table from margin column 4 Calculate Compounding per payment frequency Payment Frequency Compounding Frequency 5 If Accrual Basis is Actual Actual Actual 360 Business Day 252 Actual 365 Then Oracle Financial Services Software Confidential Restricted 19 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Calculate Rate per Payment FTP Rate Accrual Basis 12 Payment frequency or Calculate Rate per Payment FTP Rate Accrual Basis 12 Repricing frequency Else For other Accrual Basis Calculate Rate per Payment FTP Rate Accrual Basis Payment Frequency oWhen payment frequency is equal to 0 or greater than 12 pass payment frequency as 12 for calculating Rate per Payment oWhen repricing frequency is less than payment frequency and repricing frequency is greater than 0 and less than 12 pass original repricing frequency instead of payment frequency as input for calculating Rate per Payment oWhen repricing frequency is less than payment frequency and repricing frequency is greater than 12 pass repricing frequency as 12 instead of payment frequency for calculating Rate per Payment oWhen Accrual Basis is Business day 252 while calculating the actual number of days take into account the number of holidays referring to table fsi_holiday_detail and fsi_holiday_master for that particular duration a
70. n ranas 14 2 2 8 Scenario Analysis cick ossi ded rie a tore TEN et Ee e Rede dest ape endende EE monet Tode does 14 2 2 9 Obligor RAPM WEE 14 2 2 10 Pricing Reporti iei ti tr dE NEEN 14 3 APPLICATION COMPONENTS LIST cuidas 15 3 1 ORACLE FUND TRANSFER PRICING 5 55 33 e Er rae AA Ad ERAS aae Fo aae IER DEREN 15 3 2 ORACLE FINANCIAL SERVICES PRICING MANAGEMENT CAPITAL CHARGE COMPONENT 15 3 2 1 Risk Adjusted Return on Capital RAROC ge 15 3 2 2 Shareholder Value Added GVAl 15 3 2 3 RAROC and SVA Elements iie DEE dee doe c does vnd Vade AE dedo 16 3 2 4 Net Interest Income NIl t rtr eee tii dit da 16 3 2 5 Fee INCOME OESTE 23 3 2 6 AMOCO CA CO EE 24 3 2 7 EXPECT BE 24 3 2 8 Capital EA AW A A ditto edt A 24 3 2 9 Capital Charge Process DetdllS acacia thavasiieabeaassavaskbexcdeedadaanseatedesboaasadeassesTedacan tae is 24 3 2 10 Cost of CA a A aa A a Ad A AAA ea gu enda 24 3 2 11 Rate to meet Target RAROC 96 icd dia cn t ete dee ie unen d darn EE eet 25 3 212 Steps in RAPM Processing e degen Ne Eed E AEN 25 3 2 13 End to End Example for Pricing Management sessi esee nane nnne taa an asses eani rada ass nnn 27 4 PRODUCT USE CASES cre ENNEN AA 28 4 1 PRODUCT USE CASE FOR PRICING MANAGER ek 28 Be DATA MODE END p 40 6 SECURITY CONSIDERATIONS sssssscccccccessssssseeccccceeassseseeccccceeeaasssssececceeeaaassssesceceeeqaes 41 6 1 PRIVILEGE Sao 41 6 1 1 eet Re EE 41 Oracle Financial Ser
71. nagement User PRICING Connected To PRICING ORACLE iancial Services Applications Pricing Summary ER Master Maintenance G Pricing Management amp Search EP PM Maintenance Name Folder PRICINGSEG Ey Parameter Specifications Relationship Manager Product E Assumption Specifications MD Products If Daily Queries ng Summary 1 to 12 of 12 Pricing L1 Name A Relationship Manager Product Currency Status Created By Creation Date Last Modified By Last ST PF 0 RF gt PF Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 21 07 36 PRICING 10 2 ST PF gt RF si Relationship Manager 1 Secured Lending US Dollar Scenario Nil Failed PRICING 10 22 2010 19 54 20 PRICING 10 2 ST PF RF 0 Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 19 36 18 PRICING 10 2 ST RF PF De PF lt 12 Relationship Manager 1 Secured Lending US Dollar Capital Charge Failed PRICING 10 20 2010 19 33 57 PRICING 10 2 ST RF gt PF 0 lt PF 12 Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 19 31 42 PRICING 10 2 ST RF gt PF Os PF 12 AJA Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 19 54 15 PRICING 10 2 ST RF gt PF 12 Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 20 2010 21 25 43 PRICING 10 2 STRF PF O lt RF lt 12 O PF 12FLR Relationship Manager 1 Secured Lending US Dollar Successful PRICING 10 21 2010 17 37 38 PRICING
72. nal RAPM Target RAROC and Target SVA gt gt Conditional Adjustments 0 Liquidity Adjustment Basis Risk Pricing Incentives Other Adjustments and Breakage Charge gt gt Conditional Costs Allocated 0 Cost Option Cost User Defined1 and User Defined 2 Case_4 When Transfer Pricing is calculated Basel is specified and Pricing Manager is calculated Transfer Pricing Calculate The Pricing Manager application calculates Funding charge and Minimum Required Rate using transfer pricing engine Default Parameter Specification Default Value Default Parameter fo y gt gt Transfer Pricing Rule Transfer Pricing Rule 1 gt gt Prepayment Rule Prepayment Rule 1 gt gt Default Transfer Pricing IRC Monte Carlo Test gt gt Default Transfer Pricing Method Cash Flow Weighted Term Discounted Cash flow gt gt Adjustment Rule Adjustment Rule 1 Stochastic Rate Indexing Rule 1 A Jl Default Cep gt gt Option Cost gt gt Specify or 0 0000 Calculate gt gt User Defined 1 0 0000 gt gt User Defined 2 0 0000 Oracle Financial Services Software Confidential Restricted 36 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 MT A MN NETO INN ey A Target RAPM Specification OOO gt Tag RAROCIn OC Tag YA 0 8 LLL Aajustment Specification ig Adusmen 8 sake CIN cem Pricngincentves CI
73. nd subtract the number of holidays to arrive at the actual duration 6 Calculate Compounding Rate on the basis of compounding Basis If Compounding Basis At Maturity or Simple Compounding Rate Rate per Payment If Compounding Basis Continuous Compounding Rate Exp Rate per Payment 1 If Compounding Basis Daily Monthly Quarterly Semi Annual and Annual Compare Compounding Basis with Payment Frequency If Compounding Basis greater than or equal to Payment Frequency Compounding Rate Rate per Payment Else Compounding Basis less than Payment Frequency 1 Rate per Payment Compounding per Payment Frequency Compounding per payment frequency 1 7 Calculate Interest Income Cash flows for 12 Months Compounding Rate Balance Depending upon the condition it falls in Scenario 2 Repricing frequency gt Payment frequency e Interest Expense calculations For Floating Interest Rate Payment frequency greater than 0 and less than 12 and repricing frequency greater than payment frequency Consider financial element id 60 and cashflow date greater than as of date from fsi_o_process_cashflows for calculations Oracle Financial Services Software Confidential Restricted 20 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 For Floating Interest Rate payment frequency equal to 12 and repricing frequency greater than 12 Consider financial element id
74. nes how interest payments are compounded The options are Simple Daily Monthly Quarterly Semi Annually e Annually The default value is Simple Interest Payment The interest payment can be of 2 types Arrear Advance The default value is Arrears Rate Rounding The Rate Rounding Type determines how the rate assigned to the product will be rounded The following options apply No Rounding e Round Up Round Down e Round Nearest Truncate The default value is No Rounding Rate Rounding Factor If the Rate Rounding Type is Round Up Round Down or Round Nearest the rate rounding factor determines the precision of the rounding For the other Rounding Types this entry should be disabled The possible range of values for this is 0 0000 9 9999 The default value is 0 0000 Oracle Financial Services Software Confidential Restricted 65 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Terms For the above selection the following additional data inputs are required This tab describes the terms related inputs specific to the pricing details The default values for every field are described below Original Term The original term definition requires input of a unit an integer value greater than zero and selection of a multiplier Units The multiplier can be in Days D Months D Years The default is 1 Month The Original Term should
75. omputation RAROC SVA and Rate to meet Target RAROC for Pricing Manager are done using the following inputs from Exposure Detail Screen Rate of Interest Transfer Pricing Screen Fund Transfer Pricing Rate Target RAROC Target SVA and Allocated Cost and Capital Computation Screen Fee Income F eerie 7 RER pees Saba pene Nanay Bae ME ON rra 1 meng 7 Floating Rate Spread 9 L creme Ree Becher BOR mere MEET AO Case 3 When Transfer Pricing is specified Basel is specified and Pricing Manager is calculated Transfer Pricing Specify Funding Charge and Minimum Required Rate are specified as inputs Ba Transfer Pricing Default Value Funding Charge Minimum Required Rate Hoo n Capital Charge Specify When capital charge computation is specified expected loss is obtained unexpected loss and obligors rating as inputs Capital Charge Parameters Expected Loss o Unexpected Loss D Cn E gt gt Obligor is Rated gt gt Need to specify the Rating Type Internal or External Rating Source and Rating gt gt Obligor is Unrated gt gt All icons specific to the rating should get disable RAPM Calculate The calculation for Net Interest Income NID computation RAROC SVA and Oracle Financial Services Software Confidential Restricted 34 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Rate to meet Target RAROC for
76. on is allowed Customer Rating Transition Base Scenario Current Rating Scenario 1 Upgrade by One Notch Scenario 2 Downgrade by One Notch Capital measures and RAPMs are calculated for each scenario on click of Price icon Capital Measures Expected Loss Unexpected Loss Risk Weighted Assets Risk adjusted Performance Measures RAROC Oracle Financial Services Software Confidential Restricted 69 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 8 Technical Design Components and Assumptions 8 1 Detailed Design Middle Layer The middle layer component of the Pricing Manager application works as a stitching mechanism between the UI and the backend The purpose of the middle layer component is to invoke backend executables by passing appropriate parameters depending on a logic determined by the choices made on the UI screens The executables started by the middle layer are Capital Charge Computation Executable Transfer Pricing Online Executable Net Interest Income Executable The middle layer component can be started in 2 ways Ul screen Web Service The method exposed is invokeExecutables of class execInvocation 8 2 Technical Design Assumptions The common technical design assumptions are as follows A common user interface which captures the inputs are required for both the FTP and RAPM calculations Cash flow calculation through the common Cash
77. pital computation and risk adjusted performance measures It specifies the selection criteria depending upon the cases defined 4 1 Product Use Case for Pricing Manager Fund Transfer Capital Pricing Charge RAPM Specify Specify Specify Specify Case 1 When Transfer Pricing is specified Capital Computation is calculated and RAPM is calculated Transfer Pricing Specify The Funding charge and Minimum Required Rate are specified as inputs Default Transfer Pricing Value 1 Funding Charge o Minimum Required 2 Rate Capital Charge Calculate The capital computation for expected loss and unexpected loss under capital charge is done using the following inputs from Capital Charge Parameter screen Default 1 Capital Charge Parameters Value 1 1 Capital Computation gt gt Capital Computation Method Method 1 gt gt Seniority Senior 0 0000 Facility Rating gt gt Exposure is Rated gt gt Need to specify the Rating Type Internal or External Rating Source and Rating gt gt Exposure is Unrated gt gt All icons specific to the rating should get disable 1 3 Obligor Rating gt gt Obligor is Rated gt gt Need to specify the Rating Type Internal or External Rating Source and Rating gt gt Obligor is Unrated gt gt All icons specific to the rating should get disable Risk Mitigants AA New NN gt gt Mitigant Existing Mitigant or New Mitigant Mitigant gt gt Mitigant Name a
78. r taking into consideration the expected income and costs on the loan over the horizon 2 2 8 Scenario Analysis Scenario analysis involves calculating the EL UL RWA RAROC and SVA of the exposure based on 2 scenarios of ratings transition that is one notch up and one notch down For example if the current rating of the customer is AA then the capital and risk adjusted performance measures are calculated assuming a rating upgrade to AAA and a rating downgrade to A 2 2 9 Obligor RAPM In addition to pricing the new exposure Oracle Financial Services Pricing Management Capital Charge component estimates the RAPM for the obligor that is the price of all the exposures to a particular customer Estimating the Obligor RAPM involves calculating the EL UL RWA RAROC and SVA of all the loans given to the customer both inclusive and exclusive of the new loan 2 2 10 Pricing Report Pricing report is available on the successful execution of the pricing definition The components of pricing report are as follows e Pricing Details e Exposure Details Exposure Pricing Transfer Pricing Analysis Capital Charge Analysis Capital Calculations Standalone Exposure Capital section Consolidated Capital RAPM Analysis section Scenario Analysis Obligor RAPM Oracle Financial Services Software Confidential Restricted 14 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 3 Appl
79. re calculated for each product Transfer Pricing methodologies are defined within the Transfer Pricing module as Transfer Pricing IDs You can select a Transfer Pricing rule from a drop down list of all Transfer Pricing IDs that are available for the Transfer Pricing module You must select a Transfer Pricing ID Prepayment Rule Prepayment assumptions are defined within the Transfer pricing module as Prepayment rules Prepayment assumptions are referenced when calculating a transfer rate using a cash flow method The calculated cash flows are adjusted based on the prepayment assumptions contained within the selected prepayment assumption set or prepayment rules Default Transfer Pricing Interest Rate Code IRC The Interest Rate Code is used for discounting the cash flows in Cash Flow Engine while calculating the transfer pricing rate Default Transfer Pricing Method The default transfer pricing method are employed when the user manually inputs the product characteristics The following instrument sensitive transfer pricing methods are available Straight Term Cash Flow Weighted Term Cash Flow Duration Zero Coupon Discount Factor The default option is Cash Flow Weighted Term Adjustment Rule Allows you to select an adjustment rule The products selected for processing in TP Online refers to assumptions defined in the selected adjustment rule Stochastic Rate Indexing Rule Stochastic Rate Indexing assumptions are def
80. re certain types of information are defined and managed at an overall application level by the Administrator and or at the individual user level This set of information is known as Application Preferences The Administrator would have modification rights to the full set of preferences and may also provide the same rights to users at an individual user level for certain preferences Only those preferences which are set to Updateable is open to modifications by individual users User PRICING Connected To PRICING Pricing Management ORACLE EN Financial Services Applications Application Preferences P Master Maintenance CG L Pricing Management PM Maintenance Dg Application Preferences Active for Master Maintenance S Parameter Specifications E Default Parameters Assumption Management Defaults Select Preferences For Show Preferences For PRICING Property Value Is Editable PRICINGSEG Y Product Parameters Property Name E a Assumption Specifications Folder Name 188 Products Access Type read OReadiWrite US Dollar v 0 Daily Queries Initial Currency Selection Business Rule Currency IS Pricini s 2 Dimensions and Hierarchies Property Name Property Value Product Dimension Is Editable Default Relationship Manager Manager Apply Cancel ResettoDeteut Figure 2 Pricing Management RHS Screen Oracle Financial Services Software Confidential Restricted 43 User Guide Or
81. red stage tables and relevant columns having the necessary information captured either as downloads in the relevant stage tables or from the Pricing Management application UI From Pricing Management perspective a smaller version of standard Analytical Application Infrastructure Runs is embedded in the following document Ge Capital Calculation Pricing Manager xls x 3 2 10 Cost of Capital Cost of Capital is the Weighted Average Cost of Capital WACC captured as a download Oracle Financial Services Software Confidential Restricted 24 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Cost of Capital is expected as a download in reveleus_parameter_master 3 2 11 Rate to meet Target RAROC Rate to meet Target RAROC is essentially the Interest rate which matches RAROC with Target RAROC Whenever RAPM calculation is triggered rate to meet target RAROC should be calculated For Rate to meet Target RAROC interest rate is fetched twice once as user input and the second as 1 increase or decrease on the existing interest rate so that the target RAROC is achieved Rate to meet Target RAROC is calculated by linearly interpolating or extrapolating two RAROC outputs with the two corresponding interest rates The following components are involved in rate to meet target RAROC calculation H Net Interest Income NII Net Interest Income is dependent on interest income cash flow calculated
82. rge Parameters e Transfer Pricing Parameters e Customer Details TP Online Analyst Read Only e Default Parameters e Default Read Only e Product Parameters Parameters Read Only e Products e Product e Daily Query Parameters e Pricing e Products k e Exposure Parameters Edit Al e Capital Charge SE T Parameters e Transfer Pricing These duties will b cire MN restricted to analyst who create the definition Relationship Read Only e Default Parameters e Default Manager Read Only e Product Parameters Parameters Read Only e Products e Product e Daily Query Parameters e Pricing e Products e e Exposure Parameters e Daily e Capital Charge Query SE T Parameters e Transfer Pricing These duties will b dq NM restricted to analyst who create the definition Table 5 User Privileges Pricing Manager Oracle Financial Services Software Confidential Restricted 42 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 7 UL Application Component Details The Pricing Manager application consists of the following UI s Pricing Management Maintenance Application Preference Parameter Specifications Default Parameters Product Parameters Assumption Specifications Product Daily Queries Pricing 7 1 Page Information 7 1 1 Application Preference The Pricing Manager application preference page features Pricing Management Maintenance and is a part of the basic set up activity whe
83. rmance measures Chapter 5 Data Model The main objective of this chapter is to explain the data model used by the application Chapter 6 Security Considerations The main objective of this chapter is to explain the mapping of roles to each component Oracle Financial Services Software Confidential Restricted 7 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Chapter 7 UI Application Component Details The main objective of this chapter is to explain the User Interface to the user Chapter 8 Technical Design Components and Assumptions The main objective of this chapter is to state the assumptions used in designing the application Chapter 9 Reporting Application Component Pricing Report The main objective of this chapter is direct the user in viewing reports Document Conventions Certain practices have been incorporated into this document to help you easily navigate through the document The table given below lists some of the document conventions incorporated into this User Guide Conventions Description Bold User Interface Terms Italics e Cross References Emphasis Table 1 Document Conventions The other document conventions incorporated into this User Guide are as follows The Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 is referred to as Pricing Manager application
84. s an output of capital charge runs selected and processed using Pricing UI 3 2 8 Capital Capital is a summation of credit risk unexpected loss and any other risk capital if you choose to specify You can choose to Specify or Calculate credit risk unexpected loss in Oracle Financial Services Pricing Management Capital Charge Component screen If you choose to specify as option for unexpected loss then the user input for unexpected loss is captured from the front end Whereas if you choose to calculate as an option in capital charge unexpected loss is an output of capital charge runs selected and processed using the Pricing Manager application UI If you also want to add various other risk charges like Operational Risk Capital Business Risk Capital Non Discretionary Risk Capital Gap Capital and so on as part of Total Capital then the data for the same is expected as a user input for the current release captured as a download in the table The mapping for the same should exist in output data population logic 3 2 9 Capital Charge Process Details Oracle Financial Services Pricing Management Capital Charge Component uses a smaller version of the standard Analytical Application Infrastructure Runs which is shipped with the Pricing Manager application You can modify the Runs and include or exclude tasks from capital calculation perspective The successful execution of any other Run apart from the standard Runs shipped would depend on the requi
85. stem ID Created By Creation Date Last Modified By Last Modification Date Figure 14 Pricing Definition screen 7 1 6 Pricing Details Pricing details You are expected to enter all the customer related parameters in this section for an existing or a new customer Pricing Details Customer New Customer O Existing Customer Customer Name Customer ID Customer Type Banks Relationship Manager Product Name Product Type Amortizing Loan Currency Afghanistan Afghani Figure 15 Pricing Details Two options to be provided in the section Existing Customer H New Customer Existing customer When you select the option of existing customer and enter in an existing customer name Customer ID data is fetched automatically In this case the following details in the customer details tab should appear automatically New Customer When you select the option of new customer you are expected to define the section Oracle Financial Services Software Confidential Restricted 55 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Information expected to be entered or selected from the list of values available for each Customer Name Customer Type Relationship Manager Product Name Product Type Currency Customer ID is disabled on clicking New Customer as option List of Value display icon is there for Customer Type Relationship
86. sures v Conditional Adjustments v Conditional Costs Target RAROC Target SVA Liquidity Basis Risk Pricing Other Allocated Cost Option Cost User Defined 1 User Defined 2 i Criteria Adjustment Incentives Adjustments Save Cancel Figure 10 Conditional Parameter Specification The Parameters can be specified on Conditional RAPM Conditional Adjustments and Conditional Cost either one or all of them It involves the following steps Selection of Parameter Conditional Risk Adjusted Performance Measures Conditional Adjustments e Conditional Costs Specification of Conditions When conditional RAPM is selected the following conditions are enabled e Target RAPM Oracle Financial Services Software Confidential Restricted 49 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Target SVA When Conditional Adjustment is selected the following conditions are enabled Liquidity Adjustment Basis Risk Pricing Incentives Other Adjustments Breakage charges When Conditional Costs is selected the following conditions are enabled Allocated Cost e Option Cost User Defined 1 User Defined 2 Based on these parameters you can define additional conditions for each product currency combinations Specification of Parameter Values Oracle Financial Services Pricing Management Capital Charge Component allows conditions to be specified as single l
87. t is the amount of non interest costs attributed to the loan Option Cost You choose either to specify or give calculate as option for Option Cost User Defined 1 You can choose some inputs specific to the business in order to do the computations User Defined 2 You can choose some inputs specific to the business in order to do the computations 7 1 3 Product Parameter Screen The second screen for Pricing Manager is Product Parameters screen Product Parameter screen involves specifying the parameters adjustments and costs at a given product currency level This screen can be accessed from Pricing Manager Tab gt Parameter Specification gt Product Parameters In Product Parameter specification enter information for the following sections Product Details Target RAPM Specification Adjustment Specification Cost Specification Conditional Parameter Specification Product Parameter summary page has two sections Search e List of Products Oracle Financial Services Software Confidential Restricted 46 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Pricing Management User PRICING Connected To PRICING ORACLE Wane Services Applications Product Parameter Summary ER Master Maintenance 266 Pricing Management A Search EP PM Maintenance Product Currency E Parameter Specifications Q Default Parameters Product Parameters Product de
88. tal Risk Based Pricing Oracle Financial Services Software Confidential Restricted 77 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 RWA Risk Free Rate SVA TPOL UCITS UL VaR Value at Risk Risk Weighted Assets Risk free rate is the certain returns available in the market Shareholder Value Added Transfer Pricing Online Undertakings for Collective Investments in Transferable Securities Unexpected Loss Value at Risk Worst expected loss under normal conditions over a specific time interval at a given confidence level Oracle Financial Services Software Confidential Restricted 78 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Index A Adjustment Rule Adjustment Specification lee he ien eoe d e Da o EHE dest ich cadet de Ha peg Hs Pe agi E T EACUS Pe Rig HEP ER d eed Application Preference ente ettet tyiv era t werd snd ded m op it b n imm en gs B Business Process Task FOW iiie e o ee EH Ro RE ERR Rd RE ERE ER LER De Rt I a RE LER RR E aid Rie Cie 10 C shi EE 24 Capital Charge Ahalysis i e cea ice Ser 76 Capital Charge Paraimieters 3 uo E aha eaten Fe ee re en aee Eve WEE e FREE YE Ve Yea ER 12 61 Capital Charge Process ee eter riter i en y D RI HY VO PRSE I A ERO EE racine 24 Capital Charges e e Ree ea v n RR i e Ud e e ee TUR PO TE eV RE ME EO VON EAS 42 Capital R duire m
89. te The calculation for Net Interest Income NII computation RAROC SVA and Rate to meet Target RAROC for Pricing Manager are done using the following inputs from Exposure Detail Screen Rate of Interest Transfer Pricing Screen Fund Transfer Pricing Rate Target RAROC Target SVA and Allocated Cost Capital Computation Screen Fee Income Exposure Details Default Value EN ETT CS AAA El ETT Limit 9 O NN HRS 4 Exposure Maturity Dawe Interest Rate Fixed or Floating NEM Rate MEE e ES Fang Rate Sead i Fearing Rare Benchmark BOR Repricing Frequency 9 Payment Frequency O Default Capital Charge Parameters Value T Capital Computation Oracle Financial Services Software Confidential Restricted 38 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 gt gt Capital Computation Method Method 1 gt gt Seniority Senior gt gt Fee Amount 0 0000 Oracle Financial Services Software Confidential Restricted 39 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 5 Data Model Data model for Pricing Manager consists of Pricing Manager UI Tables Basel Stage tables and FTP tables Storage for Pricing Manager is as follows From the screen the definition is stored in the Pricing Manager UI tables and then
90. te is greater than as of date Financial element ID 430 and Floating Value gt 0 and scale it up till 12 months Using formula X Interest Income Count of rows Payment Frequency 12 Count of rows where Cashflow Date is greater than as of date Financial element ID 430 and Floating Value gt 0 The above formula provides interest income cash flows for 12 months 2 Fetch data for accrual basis from table fsi m prod characteristics and compounding frequency in months from fsi compound basis mls table For Business Day 252 as Accrual Basis fetch data for holidays from fsi holiday detail and fsi holiday master for calculations 3 Fetch Data for interest rate flag from fsi m pricing details table If the flag is fixed 0 then fetch fixed interest rate data from fsi m pricing details from fixed rate column Otherwise if the flag is floating rate 1 fetch data for interest rate curve from Oracle Financial Services Software Confidential Restricted 22 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 fsi_m_prod_characteristics table from interest_rate_cd column and for interest margin from fsi_m_prod_characteristics table from margin column 4 Calculate Compounding per payment frequency Payment Frequency Compounding Frequency 5 If Accrual Basis is Actual Actual Actual 360 Business Day 252 Actual 365 Then Calculate Rate per Payment FTP Rate Accrual Basis 1
91. te reporting table Oracle Financial Services Software Confidential Restricted 25 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 2 Check if option for FTP Rate is Specify or Calculate If FTP rate option is selected as Specify Populate reporting table with FTP outputs from the UI Table If FTP rate option is selected as Calculate Execute CFE for cash flow Persist the cash flow Execute TP online engine for FTP rate Populate reporting table Calculate NII Call the Cash Flow generated from CFE Cash Flow Date Principle Interest Income Calculate Interest Expense in addition to the Cash Flow Interest Expense logic is the same as is carried out for Interest Income calculation by CFE Calculate NII Take the difference of Interest Income and Interest Expense Sum the difference for a year as NII Calculate Base RAROC and SVA Compute RAROC using the base RAROC rule Two RAROC rules are created Formula for both should be the same First RAROC is called the Base RAROC and the second RAROC is called the New RAROC used to calculate the Rate to meet Target RAROC The purpose of using two rules is to avoid overwriting of base RAROC output Compute SVA triggering the SVA rule 4 Compare Base RAROC with Target RAROC Check if Base RAROC is equal less than or greater than Target RAROC If Base RAROC equals Target RAROC No further calculation should be done as rate to meet target
92. ted Loss Losses above expected levels for which capital is calculated Risk Weighted Assets Risk weighted assets is a measure of the amount of a bank s assets adjusted for risk RAROC Risk Adjusted Return on Capital SVA Shareholder Value Added Obligor RAPM Unexpected Weighted RAROC in Expected Loss Shareholder Value Added E Exclusive of New Loan B Inclusive of New Loan Figure 41 Obligor RAPM Obligor RAPM helps in finding the difference in the various parameters when a new loan is given to an existing customer For example a customer may have 3 loan obligations with a bank In case the customer applies for a new loan Obligor RAPM gives information about parameters relating to the already existing combination of the 3 loans as well as what the change in parameters would be if the 4th loan would be added in this combination Expected loss Amount of loss that is expected to occur on a loan over the next one year Unexpected Loss Losses above expected levels for which capital is calculated Risk Weighted Assets Risk weighted assets is a measure of the amount of a bank s assets adjusted for risk RAROC Risk Adjusted Return on Capital Obligor RAROC 2 Net Interest Income Zu Fee Income Zu Allocated Costs X Expected Loss X Capital Where n Number of exposures to a given obligor SV A Shareholder Value Added Obligor SVA Xi 1 n Net Interest Income Xi 1 n F
93. ternal rating then the entire facility rating section displays only one row for rating selection and all the add new delete functionalities are disabled amp Facility Rating Exposure Rating O Exposure is Rated O Exposure is Unrated Rating Type O Internal Rating O External Rating Sk Rating Source Rating Fitch Ratings v aFir Figure 20 Facility Rating Whereas if you select external rating in rating type then add new and delete icon functionality is Oracle Financial Services Software Confidential Restricted 60 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 enabled and you can enter multiple rows for selection For exposure rated and rating type is external there should be only two icons available in the right corner for this section add new and delete Add New Icon adds a new row in Facility Rating section Delete icon delete the rows on selection and click of delete If you have entered multiple facility rating details then V_Rating_ID used for all the ratings has to be the same for the same customer But V_Rating_Code need not be the same So for multiple ratings the rating information appears in multiple rows in stg_rating details with same V_rating_id but distinct V_rating_code Credit Score section Credit score section opens up when the customer type selected is Individual or High Net Worth Individual For any other customer type Obligor Rating and Facility R
94. the data is inserted into the respective Basel Stage tables and FTP tables Pricing manager UI tables are provided in the following document e Pricing Management Data Model xls xlsx Oracle Financial Services Software Confidential Restricted 40 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 6 Security Considerations 6 1 Privileges 6 1 1 Capital Charges If the customer is buying only the Capital Charge application then the Transfer Pricing parameters can only be specified System In charge of the overall control of all screens The Administrator screens are as follows e Default Parameters Pricing Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer Details Price Icon Relationship Authority is limited to only the following screens Default Manager Parameters Pricing Exposure Parameters Capital Charge Parameters Transfer Pricing Parameters Customer Details Price Icon Table 4 User Privileges Capital Charges Oracle Financial Services Software Confidential Restricted 41 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 6 2 Duties 6 2 1 Pricing Manager Duties System Read All e Default Parameters None Administrator Edit All e Product Parameters Save All e Products Delete All e Daily Query e Pricing e Exposure Parameters e Capital Cha
95. ting section displays only one row for rating selection and all the add new delete functionality is disabled You need to select the internal rating source and the corresponding internal rating Whereas if you select external rating in rating type then add new and delete icon functionality is enabled and you can enter multiple rows for selection For a customer who is rated and wherein the Rating Type is external there are two icons available in the right corner for rating details Add new and Delete Add New Icon should add a new row in Facility Rating section Delete icon deletes a row on selection If you have also entered facility rating details then V_Rating_ID used for obligor rating has to be same as the V_rating ID used in facility rating But V_Rating_Code need not be the same In case V_Rating_Code used in facility rating is same as the v_rating_code used in Obligor rating then the information should appear as a single row in stg_rating_details If V_Rating _id is same but not the v_rating code then the information appears in multiple rows in stg_rating_details Risk Mitigant Risk Mitigant displays the following Information Mitigant Name Mitigant Type Mitigant Issuer Mitigant Rating Issuer Rating and Mitigant Value All the mitigants defined in the Add New Page and saved is displayed in the mitigant summary page with the following details Risk Mitigants D 1t030f3 le Mitigant Name Mitigant Type Mitigant Issuer Mitigant
96. ultiplier Units The multiplier can be in Days e Months e Years Oracle Financial Services Software Confidential Restricted 58 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 Default multiplier unit is days Start Payment Refers to the 1st payment amount Increment Method Can be any of the following types By value By percentage Constant When by percentage option is chosen a percentage symbol appears next to the increment amount field and when the option chosen is constant increment amount field displays constant and cannot be edited Increment amount Refers to the amount by which the amount should increase The number of rows in this section can be increased or decreased by clicking the Add icon All these fields are entered on the screen and do not get updated in any table but is displayed in define payment date and amounts as follows Repayment Schedule Details Schedule Generation Automatic Repayment Schedule O Define Repayment Schedule 2 Automatic Date and Payment Generation 2 Total No of Payments Increment Type Start Date Increment By Start Payment Increment Method Increment Amount i 5 Singe Multiple 10 25 2010 E 1 Months ze 10000 00 by Value E 1000 00 gt Define Payment Dates and Amounts 1toSof5 sis SI No Date Repayment Amount i 10 25 2010 28 10000 11000 12000 1 25 2011 SS 13000 2725 2011 C8 14000 Figure
97. ut for target RAROC and Target SVA The RAPM is applicable to the given product and the currency selected in the product currency section Oracle Financial Services Software Confidential Restricted 48 User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 2 Target RAPM Specification Target RAROC in 96 0 0000 Target SVA Figure 7 Target RAPM SpecificationAdjustment Specification Under product parameter tab the required adjustments need to be specified These inputs are specific to the selection made for product currency combination amp Adjustment Specification in Liquidity Adjustment Basis Risk Pricing Incentives 0 0000 Other Adjustments 0 0000 Figure 8 Adjustment Specification in Cost Specification Under product parameter tab the required cost parameters need to be specified These inputs are specific to the selection made for product currency combination Cost Specification in Allocated Cost User Defined 1 Option Cost O Specity O calculate User Defined 2 0 0000 Figure 9 Cost Specification in Conditional Parameter Specification Conditional parameter specification involves specifying the parameters applicable for risk pricing based on specific conditions which can be at a single or multiple nested conditions levels amp Conditional Parameter Specification LE Diop of Parameter Selection v Conditional Risk Adjusted Performance Mea
98. vices Software Confidential Restricted ii User Guide Oracle Financial Services Pricing Management Capital Charge Component Release 6 0 6 2 DUTIES EE 42 6 2 1 Pricing Manager DUties e coe Eet een Ee trenes Ge e dee Eet atada EN EE 42 7 UI APPLICATION COMPONENT DETAILS cccccccccccsssssssssecccccceeessseseecccceeeaasssseeceees 43 7 1 PAGE NE MN Ee EES 43 7 1 1 Application Pref rence E E eege UR NE SERE EP RIT ee 43 7 1 2 Default Parameter Screen A eese Ease ue ee ER Hanes aa ease ES da REEL E den eua Aid 44 7 1 3 Product Parameter Screen iie ex ee el eee s te E Rees dedos 46 7 1 4 Pricing Parameters eege DEE ara bushes Ge e veo den Ee aaa ea ea e v EE EVEN aL ed Den Ye NA GE 51 7 1 5 Pricing Definition diiit p I GRE deeg GERA ETT ERR diia 54 7 1 6 Pricing DECI Si a er Oe rente e eue e err en ere ee 55 7 1 7 LS ee e ee e 56 7 1 8 Repayment Schedule D tails s RAN 57 7 1 9 Capital Charge Parameters esses sese eene nennen ananas a stadia assess essa dada assa ss essa sa dadas sess sa andas 59 71 10 Transfer Pricing Para Mete ui e ht ter rex PORE e eR S ER ee e T aid 63 71 11 Customer Detal EE 67 Kelt E TC 69 8 TECHNICAL DESIGN COMPONENTS AND ASSUMPTIONS sssscsccccccesssssseeeeees 70 8 1 DETAILED DESIGN MIDDLE LAYER eerte rne sds sdadesecedivnsSceuiessdevedcostosesduuosa teat iaria iiaae anaia 70 8 2 TECHNICAL DESIGN ASSUMPTIONS ic eene

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