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SUPPORT / SAMPLES & SAS NOTES
 

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Problem Note 45533: SAS® Risk Management for Banking and SAS® Market Risk Management for Insurance assume continuously compounded interest, not annual simple interest

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The pricing methods for instruments that generate cash flows in any application of SAS Risk Management for Banking and in SAS Market Risk Management for Insurance assume continuously compounded interest. This is inappropriate for such instruments and therefore resulting valuations are incorrect. Correct instrument valuations should use simple interest calculations.

As an example of the difference, consider the future value (FV) of a principal (P) at rate (r) and term (y).

Assuming annual simple interest:

PV=P+P(ry)

Assuming continuously compounded interest:

PV=P+P[e^(ry)-1]

For information about an available fix for this issue, contact SAS Technical Support. After application of the fix, the pricing methods in SAS Risk Management for Banking and in SAS Market Risk Management for Insurance perform simple interest calculations. Furthermore, they expect that annual discrete interest rates are provided via the input data columns listed in the following tables.

Rates Input Directly
Column Name Table
BASE_CONTRACT_RT CASHFLOW_ACCOUNT, CASHFLOW_INSTRUMENT, CONVERTIBLE_BOND_INSTRUMENT, SWAP_INSTRUMENT
FLOAT_SPREAD_RT CASHFLOW_ACCOUNT, CASHFLOW_FRA, CASHFLOW_INSTRUMENT, CONVERTIBLE_BOND_INSTRUMENT, SWAP_INSTRUMENT
CAP_RT CASHFLOW_ACCOUNT, CASHFLOW_INSTRUMENT
FLOOR_RT CASHFLOW_ACCOUNT, CASHFLOW_INSTRUMENT
EXPENSE_VAL EXPENSE_ALLOCATION if EXPENSE_VAL_TYPE_CD = "RATE"
FTP_BASE_RT CASHFLOW_ACCOUNT, CASHFLOW_INSTRUMENT, CONVERTIBLE_BOND_INSTRUMENT
FIXED_MONTHLY_PREPAYMENT_RT CASHFLOW_ACCOUNT
REPO_RT REPO_INSTRUMENT
YIELD_RT CASHFLOW_INSTRUMENT

Rates Input via Risk Factor or Risk Factor Curve Reference
Column Name Table Conditions
ASK_RT, BID_RT, MID_RT QUOTE_IR If RISK_FACTOR_ID is:
  • a FLOAT_REF_RATE_ID in CASHFLOW_ACCOUNT, CASHFLOW_INSTRUMENT, CONVERTIBLE_BOND_INSTRUMENT, or SWAP_INSTRUMENT
  • a FRA_UNDERLYING_REF_RATE_ID in CASHFLOW_FRA
  • linked to a FLOAT_REF_CURVE_ID in CASHFLOW_ACCOUNT, CASHFLOW_INSTRUMENT, CONVERTIBLE_BOND_INSTRUMENT, or SWAP_INSTRUMENT through RISK_FACTOR_X_RISK_FCTR_CURVE
  • linked to a FRA_UNDERLYING_REF_CURVE_ID in CASHFLOW_FRA through RISK_FACTOR_X_RISK_FCTR_CURVE
  • linked to a FUNDING_CURVE_ID in CASHFLOW_ACCOUNT, CASHFLOW_INSTRUMENT, CONVERTIBLE_BOND_INSTRUMENT, CASHFLOW_FRA, or SWAP_INSTRUMENT through RISK_FACTOR_X_RISK_FCTR_CURVE
DATA_VALUE_AMT QUOTE_DATA If RISK_FACTOR_ID is:
  • a PREPMT_RATE_RISK_FACTOR_ID in CASHFLOW_ACCOUNT
  • linked to a PREPMT_CURVE_OBJECT_ID in CASHFLOW_ACCOUNT through RISK_FACTOR_X_RISK_FCTR_CURVE



Operating System and Release Information

Product FamilyProductSystemProduct ReleaseSAS Release
ReportedFixed*ReportedFixed*
SAS SystemSAS Risk Management for BankingMicrosoft® Windows® for x642.13.119.3 TS1M0
Microsoft Windows Server 2003 Datacenter Edition2.13.119.3 TS1M0
Microsoft Windows Server 2003 Enterprise Edition2.13.119.3 TS1M0
Microsoft Windows Server 2003 Standard Edition2.13.119.3 TS1M0
Microsoft Windows Server 2003 for x642.13.119.3 TS1M0
Microsoft Windows Server 20082.13.119.3 TS1M0
Microsoft Windows Server 2008 for x642.13.119.3 TS1M0
Microsoft Windows XP Professional2.13.119.3 TS1M0
Windows 7 Enterprise 32 bit2.13.119.3 TS1M0
Windows 7 Enterprise x642.13.119.3 TS1M0
Windows 7 Home Premium 32 bit2.13.119.3 TS1M0
Windows 7 Home Premium x642.13.119.3 TS1M0
Windows 7 Professional 32 bit2.13.119.3 TS1M0
Windows 7 Professional x642.13.119.3 TS1M0
Windows 7 Ultimate 32 bit2.13.119.3 TS1M0
Windows 7 Ultimate x642.13.119.3 TS1M0
Windows Vista2.13.119.3 TS1M0
Windows Vista for x642.13.119.3 TS1M0
64-bit Enabled AIX2.13.119.3 TS1M0
64-bit Enabled HP-UX2.13.119.3 TS1M0
64-bit Enabled Solaris2.13.119.3 TS1M0
HP-UX IPF2.13.119.3 TS1M0
Linux2.13.119.3 TS1M0
Linux for x642.13.119.3 TS1M0
Solaris for x642.13.119.3 TS1M0
SAS SystemSAS Risk Management for InsuranceMicrosoft® Windows® for x641.22.1_M19.2 TS2M3
Microsoft Windows Server 2003 Datacenter Edition1.22.1_M19.2 TS2M3
Microsoft Windows Server 2003 Enterprise Edition1.22.1_M19.2 TS2M3
Microsoft Windows Server 2003 Standard Edition1.22.1_M19.2 TS2M3
Microsoft Windows Server 2003 for x641.22.1_M19.2 TS2M3
Microsoft Windows Server 20081.22.1_M19.2 TS2M3
Microsoft Windows Server 2008 for x641.22.1_M19.2 TS2M3
Microsoft Windows XP Professional1.22.1_M19.2 TS2M3
Windows 7 Enterprise 32 bit1.22.1_M19.2 TS2M3
Windows 7 Enterprise x641.22.1_M19.2 TS2M3
Windows 7 Home Premium 32 bit1.22.1_M19.2 TS2M3
Windows 7 Home Premium x641.22.1_M19.2 TS2M3
Windows 7 Professional 32 bit1.22.1_M19.2 TS2M3
Windows 7 Professional x641.22.1_M19.2 TS2M3
Windows 7 Ultimate 32 bit1.22.1_M19.2 TS2M3
Windows 7 Ultimate x641.22.1_M19.2 TS2M3
Windows Vista1.22.1_M19.2 TS2M3
Windows Vista for x641.22.1_M19.2 TS2M3
64-bit Enabled AIX1.22.1_M19.2 TS2M3
64-bit Enabled HP-UX1.22.1_M19.2 TS2M3
64-bit Enabled Solaris1.22.1_M19.2 TS2M3
HP-UX IPF1.22.1_M19.2 TS2M3
Linux1.22.1_M19.2 TS2M3
Linux for x641.22.1_M19.2 TS2M3
Solaris for x641.22.1_M19.2 TS2M3
* For software releases that are not yet generally available, the Fixed Release is the software release in which the problem is planned to be fixed.