Make informed decisions based on precise present values and improved risk estimation
Risk items must be evaluated using Credit Spreads in SAP TRM. So far, however, Credit Spreads could only be used to shift the interest rate curve in parallel, so it was not possible to factor in maturity-dependent effects.
Since SAP ERP 6.0 EhP5 it is possible to define time-dependent Credit Spread Curves and to consider them in the valuation. Comparable to the definition of yield curves, a Credit Spread Curve is based on several interpolation points of different maturities. These interpolation points can be assigned different credit spread premiums or reductions. Derivation rules can be used to group exposures, using different Credit Spread Curves for each group.
The standard SAP solution offers only a very limited amount of master data characteristics to allocate Credit Spread Curves, and their maintenance is quickly confusing even with just a few assets.
Approach of COMPIRICUS
You can also use our Credit Spread Calculator to get an even finer breakdown of your risk positions without loosing track.
This allows you to use and combine all master data available in the system as a basis for assigning Credit Spreads. In addition, easy maintenance or updating is ensured thanks to an Excel interface.
For example, for all subordinated bonds issued by German industrial companies with an AA rating and a term of more than 5 years, you can include a base spread in the evaluation. This shifts the yield curve parallel to the specified base points over the entire term.
In addition, the new SAP Credit Spread Curves allow for the inclusion of additional risk premiums in the evaluation of cash flows in the distant future.
You can either define the risk premium yourself or assign it using a reference security.
For positions with available market values, the Credit Spread Calculator provides another calculation mode. By means of iteration, the spread is determined which, when the position cash flow is discounted, results in a cash value which is identical to the market value. This procedure can be run both with and without using the spread curves.
With the help of the new Credit Spread Curves in SAP TRM, your risk positions can be evaluated even more differentiated. The full potential of this solution opens up in combination with the COMPIRICUS Credit Spread Calculator.
By calculating the spread resulting from the comparison of the theoretical and market value, a uniform and comprehensible basis is created to determine future market values based on known cash flows using scenarios.
If you require any further information, we are glad to be at your service. Write an email to us at email@example.com or call us on +49 211 64949-300.