5/31/2021 Financial Instruments Reference Guide

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Financial Instruments Reference Guide

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Overview
Front Office – Por olio Management (PM) is a comprehensive asset management package for UNIX-Windows NT networks. The package implements the latest
client/server technology in conjunc on with the Sybase database. The Front Office – PM server side so ware uses advanced analy cal and flow control func onality,
including a financial server, a report generator, and a database server to structure, access, and administer the database.

On the client side, Front Office – PM runs on Windows NT worksta ons. A variety of screens allow you to interact with the Sybase database. The data in the fields
presented on the various screens is recorded directly in the appropriate database tables when you validate it (usually by clicking OK bu on in a data entry screen).

Front Office – PM makes extensive use of lists to display table data. For many opera ons, a selec on screen first displays a list so you can select an exis ng entry to
view or modify. If the object is not in the list or the list is empty, a Create bu on lets you create a new object of the list type. When you create and validate a new
object, you are in fact entering a new record in the database. When you view or modify a list item, you are in fact reading records from the database and returning
modified records to the database if you validate your changes. A host of hidden features helps you manage this data and perform a wide range of financial
calcula ons on it.

Front Office – PM also includes extensive, advanced script and interface languages that allow you to run the program in batch mode and to customise it to meet your
requirements. This way, Front Office – PM can manipulate large volumes of data.

Front Office – PM implements all financial func ons used in today's markets and lets you record all major financial opera ons currently prac sed. Advanced analysis
and risk features help you make the right decisions on me.

The financial instruments handled by Front Office – PM are:

Stocks

Fixed Income

Op ons

Cash Accounts

Money Market

Forward Contracts

Future Contracts

Index

Rate

Swaps

Discount Instruments

Commodi es

Fund Share

Curves

Deliverable Instruments

Debts

Op on Bonds

Conver ble Bonds

Other Instruments

Forward Rate Agreements

Forex Swaps

Exo c Op ons

Mortgage-Backed Securi es

Swap ons

Flow Instruments

Structured Products

Defini on of Instruments
The concept of financial instruments encompasses all the assets (stocks, bonds, cash accounts) and contracts (op ons, futures) that can be held in a por olio as well
as any underlying instruments (indexes, rates) that support their pricing mechanisms.

Three major concepts apply to instrument crea on:

All instruments are stored in the same table. Real or possible cash flows are defined in associated events sub-tables.

Composite instruments are complex instruments that you build from basic component instruments.

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Generic instruments let you define per nent data at the transac on level for simple OTC instruments ( me deposits, foreign
exchange forwards and plain Vanilla swaps). You do not have to create as many instruments as there are contracts.

Instruments and Events

The following sec ons provide addi onal informa on about instruments and events:

Natures and Sub-natures

Common Data

Accrual Rules

Event Tables

Simple Instruments

End of Business Day Conven on

Natures and Sub-natures

All instruments are kept in the same table but hard-coded "Nature" and "Sub-nature" fields are used so that specific kinds of instruments can be processed
appropriately.

The list of instrument natures is as follows: Stock, Fixed Income, Op on, Cash Account, Money Market, Future, Forward, Index, Rate, Swap, Discount Instrument,
Commodity, Fund Share, Yield Curve, Deliverable, Debt, Other, Op on Bond, Conver ble Bond, Forward Rate Agreement, Forex Swap, Exo c Op on, Swap on,
Mortgage-Backed Security, Flow Instrument and No onal Instrument.

Examples of sub-natures are:

Nature Sub-natures

Fixed Income US Treasury bond, BTP, OAT, FRN, etc.

Rates money market rate, discount rate, etc.

Swaps fixed / float, fixed / fixed, float / float, etc.

Exo c Op ons chooser, lookback, Asian, Barrier, Spread, etc.

Common Data
The following a ributes are applicable to most instruments:

A ribute Descrip on

Iden fica on Data

Code Most common iden fica on code for instruments. This is the default code for
all instruments (e.g. CH00xxxx for Nestle).

Name Name of the instrument. It is typically used in screen displays.

Denomina on Long name of the instrument in the default language of the system.

Mul -Lingual Denomina on sub-table permits mul lingual denomina ons to be a ributed.
Denomina on

Codifica on Synonym sub-table associates other instrument codes with the instrument
(Reuters code, Telekurs, CEDEL, etc).

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A ribute Descrip on

User-defined classifica on

Type You can associate the instrument with a user-defined hierarchy of types and
subtypes.
Subtype

Issue data

Reference Indicates the currency of the principal or capital. For contracts, this is the main
Currency quota on currency.

Parent The original stock of which the current instrument is a foreign cer ficate (e.g. an
Instrument ADR). For cash accounts, it is used to define a "parent" cash account that
contains all the informa on rela ng to interest rates. With interest changes, you
only enter data at the parent cash account level.

Vote Quan ty Mainly used for stocks to indicate how many vo ng rights are associated with
one share. Can be used for constraints (e.g. a fund is not allowed to hold more
than 5% of vo ng rights).

Face Value Nominal value of a stock or bond quoted in units. (e.g. 1 unit of OAT bond
represents 2000 FRF).

Issuer The third party that issued the instrument, e.g. Belgian Government.

Issue Number of instruments issued in the market. Could be used for constraints (e.g.
Quan ty not more than 7% of the same non-sovereign issuer).

Issue Quote Indicates the price at which the instrument is issued.

Contract Size Used to define the quan ty implied by one contract, e.g. 100 for US stock
op ons.

Notepad Used to store any comments (textual) on the instrument. These comments are
shared with any users who have access to the instrument.

Wrap Eligible Indicates if the instrument is eligible for wrap services. Instrument natures such
as Stock, Fixed Income, Fund share, Conver ble Bond and Mortgage-Backed
Security are eligible for wrap services. An instrument being eligible for a wrap
service means that the various fees (administra ve expenses, management
expenses, commissions for trading, investment advice etc.,) on that instrument
can be wrapped into a single fee for all the services provided.

Risk Data

Risk Country Geographic area to which the instrument is most exposed.

Risk Currency Currency to which the instrument is exposed.

Risk Nature Risk factor to which the instrument is exposed, e.g. equity for stocks,
commodity for gold mining stocks, interest rate for Fixed Income, etc. The Risk
Nature is used in the risk engine (see below).

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A ribute Descrip on

Ra ng A sub-table where the ra ng (creditworthiness) is stored. Various ra ngs of

A ribu on different agencies can be held (S&P, Moody’s, etc.). You can also define this at
the issuer level.

Sector A sub-table storing the economic sectors linked to the issuers of the
A ribu on instruments. Various sector sources can be held (NACE, BNS, etc.).

Market Data

Index Representa ve index of the market to which the instrument belongs.

Last Trade Indica ve date on which the instrument can be traded (especially in deriva ve
Date contracts).

Nego able Indicates if the instrument is traded.

Flag

Ac ve Can be used in user-defined selec on lists.

Quota on Data

Market The main market on which the instrument price is quoted (e.g. NYSE, LIFFE).

Provider Default quota on source (e.g. Telekurs, Reuters).

Valua on Method used to price the instrument. Permi ed values are:

Rule
Quoted: the price is found in the instrument price table

Quote = 0: used for posi ons with no values

Quote = 1: used for cash accounts, for example

Composite: the price is computed as the sum of its components (for

example, op on bonds)

Theore cal: the price is computed from a model, a yield curve (for
example, op ons, swaps)

Reference Instrument: the price is computed as a margin to be added

to the price of the reference instrument (see below)

Script: price computed using a user-defined script (for debts only)

Parent Price: adopts the price of the parent instrument (used mainly
in fund spli ng)

Simple Script: evaluates the script as it stands without performing

fund valua ons. Reference Instrument: used to support the
"reference" quota on rule.

Odd Lot Trading round lot.

Quan ty

Tick Size Minimum price increment.

Se lement Number of days to se lement. Can be used in calendar func ons.

Cycle Days

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A ribute Descrip on

Price Indicates how the unitary amount (price) is computed from the market quote.
Calcula on The unitary amount is the value of one unit of instrument (e.g. a discount
Rule instrument is quoted at 3.725% and the unitary amount is 0.9866; for stocks,
the quote and the price are the same; for bonds, the quote is 102 and the price
is 1.02).

Note: The Script Valua on rule ini ates a complete fund valua on process to
calculate its value. This means that a complete fund valua on is also performed
in the Journal and Event Genera on func ons for this purpose (if there are
debts in the por olio). The simple Script Valua on rule does not start a fund
valua on but simply evaluates the script as it stands. This makes the Journal and
Event Genera on func ons more efficient.

Tax Data

The taxa on of instruments is handled by script language key words that normally use the fees
and tax conven on tables. However, the following a ributes can also be referenced if instrument
specific issues have to be processed.

Tax Country The fiscal residence of the instrument.

Withholding The rate withheld on income payment.

Tax Rate

Short Term The tax rate applied on short term capital gains.
Capital Gains
Tax Rate

Long Term The tax rate applied on long term capital gains.
Capital Gains
Tax Rate

Long Term The period a er which the long term capital tax is applied.
Period Unit

Unit
Frequency

Euro conversion data

You can use these a ributes for automa c conversion into Euro.

New Euro The new "Euro" instrument into which the instrument is converted.
Instrument

Euro The date at which conversion occurs.

Conversion
Date

Euro The method used to convert into the new "Euro" instrument. (e.g. "bo om up
Conversion one cent", "top down minimum lot").
Rule

MiFID data

Complexity This field is used to specify the complexity of an instrument. This field could be
ini alised by a default value based on other a ributes of the instruments such
as nature, risk-nature, currency, market, etc.

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A ribute Descrip on

Risk Level This field is used to specify the risk level of an instrument. This field is used in
conjunc on with the investment profile risk level in order to check if the
instrument does not excess the risk level tolerated by the investment profile.

Market This field is used to define the market direc ve category to which the
Direc ve instrument belongs (similar to the Markets in Financial Instruments Direc ve
Category (MiFID) in Europe). This field is used to define various investment restric ons,
which will prevent investment proposals that are not suitable or appropriate for
clients depending of their knowledge and experience of such instrument
category.

User-defined fields

You can always create user-defined fields in the instrument table if further informa on is
required (refer to the WealthSuite Front Office - Por olio Management - System Management
Guide).

Default values and input control

You can define default values that set the a ribute values for all the fields. Addi onally, the input
data is validated by parameterised input controls.

Accrual Rules
A number of instruments that bear interest require an Accrual Rule to be defined in their defini on (e.g., Fixed Income instruments, Op ons, Rates, etc.). For
example, yields on some instruments are quoted on the basis of a 360-day year, others on a 365-day basis.

Front Office – PM includes the following Accrual Rules*:

# of
Accrual Rules Func on DATE_DayBetween() days in
year

30E/360 Each month has 30 days, the 31st is treated as the 30th 360

30/360 (Feb) Each month has 30 days, the 31st is treated as the 30th (28.2, 29.2, 360
30, 31 can be the last day of the month)

30/360 (Def) Each month has 30 days. The 31st is assumed to be the 1st of the 360
following month.

30US/360 Each month has 30 days. If the period starts on the 31st change to 360
30th. If the period ends on the 31st and starts on 30th or 31st,
change end to 30th, otherwise leave at 31st.

Actual/365 Exact number of days in year (leap year control) 365

365/365 February has always 28 days, other months are treated normally 365

Actual/Actual Exact number of days in a year (leap year control). Actual/Actual Actual
uses the same implementa on as the accrual rule ACTACT (see
ACTACT in the next table below).

Note: For Actual Interests computa on of several periods (when the

first period was a leap year followed by a longer accrued interest
period (on a non-leap year)), Front Office – PM formerly used an
equivalent method to the SimCorp ACTLEAP method. Now, ACTACT
is systema cally used when Actual/Actual is chosen.

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# of
Accrual Rules Func on DATE_DayBetween() days in
year

Actual/360 Exact number of days in year (leap year control) 360

Actual+1/365 Exact number of days in year (leap year control) + 1 365

Actual/Actual Exact number of days in year (leap year control, difference between Annual
(US) 2 days for the same month and year) Period

30E/365 Each month has 30 days, the 31st is treated as the 30th 365

30/360 Each month has 30 days, the 31st is treated as the 30th 360

30E/Actual Each month has 30 days, the 31st is treated as the 30th Actual

30US/365 Each month has 30 days. If the period starts on the 31st change to 365
30th. If the period ends on the 31st and starts on 30th or 31st,
change end to 30th, otherwise leave at 31st.

30US/Actual Each month has 30 days. If the period starts on the 31st change to Actual
30th. If the period ends on the 31st and starts on the 30th or 31st,
change the end to 30th, otherwise leave at 31st

Actual+1/Actual Exact number of days in year (leap year control) + 1 Actual

Actual+1/360 Exact number of days in year (leap year control) + 1 360

30/360+1 Each month has 30 days, the 31st is treated as the 30th+1 360
(Italian BTP)

BUS/252 Number of business days between two dates. 252

To calculate how many days there are in leap years (where the rule is xxx/Actual):

Days in 4 years = 4 * 365 + 1

Days in 100 years = 100*365 + 25 -1

Days in 400 years = 400*365 + 100 -4 + 1

Since Release 4.10, addi onal accrual rules are available that more closely match market requirements, par cularly with regard to ISDA conven ons.* You may not
actually see much difference between the old and the new method, yet the newly implemented rules support the end-of-month conven on, which was not handled
in the past.

Related
Numerator
Accrual Rule Denominator Computa on Old
Computa on
Method**

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Related
Numerator
Accrual Rule Denominator Computa on Old
Computa on
Method**

ACTACT The number of days The number of days per year is the
between the two dates actual numbers of days from the
is computed as the period start date to one year ahead.
actual number of
calendar days in the
period, including 29th
February if it occurs in
the period.

ACTLEAP The number of days The period is split into the periods
between the two dates that are in leap years and those that
is computed as the fall in non-leap years. In the former
actual number of periods, the number of days per year
calendar days in the is 366 while in the la er periods the
period, including 29th number of days is 365. The day count
February if it occurs in frac on is the sum of the day count
the period. The me frac ons of the sub-periods. More
period in ques on is precisely, this means the
defined to go from, and denominator is 366 when the period
including, the period covers the leap year’s extra day (29th
start date to, but February), otherwise the
excluding, the period denominator is 365.
end date.

ACTAFB*** Same as ACTACT. If the period is shorter than one year

then the number of days is 366 if 29
February occurs in the period.
Otherwise, it is 365.

If the period is longer than one year

then the period is split into yearly
sub-periods - coun ng backwards
from the period end date - plus the
remaining ini al stub period of length
shorter than one year. The day count
frac on is the sum of the day count
frac ons of the sub-periods. The stub
period is treated in accordance with
the first rule and the remaining year-
long periods have a day count
frac on of 1.

ACTEUROBOND Same as ACTACT. If the period equals a whole year

then the number of days per year
equals the actual number of days in
the period. If the period is not a
whole year the number of days per
year equals the number of days in
the calendar year of the end period
date.

ACTFRF Same as ACTACT. The number of days per year is the

actual number of days from the end
period date to one year before.

EU30360 360 * (y2 - y1) + 30 * 360 30/360

(m2 - m1) + (d2 - d1). If (Def)
d1 = 31 then d1 is set to
30. If d2 = 31 and
modified d1 = 30 then
d2 is set to 30.

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Related
Numerator
Accrual Rule Denominator Computa on Old
Computa on
Method**

EU30E360 360 * (y2 - y1) + 30 * 360 30E/360

(m2 - m1) + (d2 - d1). If
d1 = 31 then d1 is set to
30. If d2 = 31 then d2 is
set to 30.

EU30E365 360 * (y2 - y1) + 30 * 365 30E/365

(m2 - m1) + (d2 - d1). If
d1 = 31 then d1 is set to
30. If d2 = 31 then d2 is
set to 30.

US30360 360 * (y2 - y1) + 30 * 360 30US/360

(m2 - m1) + (d2 - d1). If
d1 = 31 then d1 is set to
30. If d2 = 31 and
modified d1 = 30 then
d2 is set to 30.

US30E360 360 * (y2 - y1) + 30 * 360

(m2 - m1) + (d2 - d1). If
d1 = 31 then d1 is set to
30. If d2 = 31 then d2 is
set to 30.

ACT365 Same as ACTACT. 365 Actual/365

ACTNL365 The number of days 365

between the two dates
is computed as the
actual number of
calendar days in the
period, excluding 29th
February.

ACT360 Same as ACTACT. 360 Actual/360

EU30EP360 360 * (y2 - y1) + 30 * 360

(m2 - m1) + (d2 - d1). If
d1 = 31 then d1 is set to
30. If d2 = 31 then d2 is
set to 1, m2 (and
possibly y2) is updated
to next month.

BUS252 The number of days 252

between two dates is
computed as the
number of business days
in the period.

*One difference to take into account between two libraries of accrual rules is that the first one assumes a genera on of income period forward (Anchor) – as in with
a first coupon regular - whereas the second assumes a genera on of income backward from the end date (Anchor Back) – as in with a last coupon date regular. This
implies that if there is an irregular coupon period due to the coupon frequency and to the dates set, then it will be assumed at end with the first library and at
beginning with the second. Consequently, it will have an impact on other coupon periods as well as on accrual calculated. Of course, it also depends on the other
instrument parameters impac ng the accrued and coupon calcula ons.

**Note that the mapping provided in this case cannot be totally ascertained. Computa on differences may arise if you use an end-of-month conven on.

***The ACTAFB method is the one recommended by the ISDA for bond markets and floa ng swap legs.

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Event Tables
All flows associated with the instrument are described in related event tables. These are:

Event Table Descrip on

Issue or Defines the flows that "create" or "repay" the principal of an instrument. For
Redemp on example, defini on of issue or redemp on schedules of Fixed Income instruments
Event (final redemp on, early redemp on, sinking funds), the amount of outstanding
principal for a debt instrument, or mortgage-backed securi es redemp on plans.

Income Defines when income is paid. This covers the defini on of odd periods, ex-dates,
Payment dual currency payments, and, for stocks, the paid dividend.
Event

Interest Defines the rate of interest or how it is computed (benchmark, mul plica ve
Rate factor, spread, capped and/or floored rates). Lets you specify cash account
Condi on interest rates (you can specify a different interest rate for nega ve balances).

Exchange Defines events where a new instrument is obtained or is received as part of an

Event exchange. Typically, it is used to define corporate ac ons (stock dividends, splits,
reverse splits, capital increase, merger, spin off, etc.) as well as Conver ble Bond
conversions and cum op on bond stripping.

Term Defines the condi ons in which a deriva ve contract can be exercised and
Contract therefore includes not only the exercise of op ons and Futures se lements
Event (including cheapest-to-deliver handling) but also swap ons and the exercise of
Exo c op ons.

The a ributes listed in these tables are described in the following sec ons (as descrip ons of each "nature"). However, the following remarks apply to all events:

Code: Business iden fier of the event. The code can be used to give a coupon or dividend number to the event. In the
Journal and Event Genera on func ons (refer to the WealthSuite Front Office - Por olio Management - Business Func ons
User Guide), the code and a hard-coded sequence are used to check that a posi on does not already exist with the same
characteris cs. If any are found, no flow is generated. Otherwise, the event code and number are copied respec vely into
the event code and event number fields of the posi on.

Validity Date: Date when the event is known. You can therefore view past data "as it was known". The system ignores all
events that have not passed their validity date. You can also use the Validity Date when the condi ons of a Conver ble Bond
change due to a split in the target stock.

Begin Date: Opposite to the Validity Date. It defines the first possible date on which the event can occur.

For the Event Genera on func on:

There is no redemp on opera on generated for the term events with the following condi ons:

The instrument of the term event has one of the following sub-natures: Accumulator, Decumulator, Mini Futures -
Turbo, Basket Op on, Structured Op on, Double Knock-in, Knock-in Knock-out Barriers, Pivot Op on, Digital Pay Out,
Par cipa ng Forward, Target Knock-out Forward, and Pivot TARKO

The term event has one of the following pay-off natures: Accumulator, Decumulator, Digital, Short, and Long.

There is no income opera on generated from the interest rate condi on record that has the interest rate rule set to Digital
or Range Accrual.

Simple Instruments
You can use events to define flows at any me. For some straigh orward, simple instruments, however, you should enter data directly at the instrument level. These
are described in detail in each sec on.

Examples:

The fixed interest rate can be stored in the instrument table but stepped coupons are stored in the interest rate condi on
sub-table.

First genera on op ons can be stored in the instrument table but not exo c op ons.

Final redemp on of Fixed Income instruments can be stored in the instrument table but not early redemp on possibili es.

End of Business Day Conven on

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There are cases where the system needs to address which day should be considered when the last coupon payment falls on a holiday. The cash flows Begin, End &
Payment dates must be take into account the business day's conven on and apply it to the appropriate Calendar.

The cash flows can be moved to before or a er the coupon date based on the Holiday calendar by configuring the Business Day conven on in the Instrument en ty.

For example. if the choice is the Next in Month in the business day conven on then Cash flow dates are moved on a following business day basis and moved to the
previous business day if the next business day falls on the next month. Cash flow amounts are adjusted accordingly.

Composite Instruments
You can define instruments as composite instruments, that is, an instrument that depends either on its pricing or risk measure on
the value or risk characteris cs of other "component" instruments. An example of this is a cum-warrant bond that is viewed as the
sum of an "ex-warrant" bond and a number of warrants. In this case, the cum-warrant bond is quoted but in a Risk View the
composite instruments are shown.

The composite instrument process is used frequently to define indexes, mul -legged swaps, underlying of basket op ons, exchange op ons, or spread op ons.

From a financial engineering point of view, this process can also be used for structured products where the instrument is
composed of an op on on an index and a zero-coupon bond.

Defining the composi on of an instrument is done by crea ng occurrences in the instrument composi on table. In par cular:

Instrument is the component instrument.

Quan ty is the quan ty for one unit of composite instrument.

Rank is important in Risk Views where the sum of the values of the component instruments is equal to the value of the
composite instrument. The value of the component with the highest rank is computed by difference.

Generic Instruments
For instruments that are issued "on demand", differ only by a few characteris cs (issue date, interest rate, etc.) and are not quoted directly on the market. You can
define a "generic" instrument and enter the relevant data at the opera on level.

Typically, this applies to term deposits where the rate and expira on date are specified at opera on level but it also applies to foreign exchange contracts, Forex
swaps, forward rate agreements, and plain Vanilla swaps.

Note that if you want to disable the merger of posi ons in the same instrument because of these different characteris cs, it is o en necessary to enter generic
instruments using an Open Reference nature (refer to the WealthSuite Front Office - Por olio Management - Opera ons, Posi ons, and Fusions Reference Guide for
more details).

Defining Generic Instruments

To define a generic instrument, check the Generic Flag box in the Instrument Defini on screen.

Instrument Templates
Instrument templates contain predefined a ributes that are designed to make crea on of OTC Orders, OTC Contracts and Deposit Orders via Channels easier and
faster.

Templates are created as instrument en es always in MASTER business en ty, with the Negotiable flag set to No and Underlying category set to None.

The following instrument template types are available:

Structured Notes Templates

OTC Deriva ves (Non-FX) Templates

OTC Deriva ves (FX) Templates

Structured Products Templates

Fiduciary Deposit Templates

Term Deposit Templates

Structured Notes Templates

Structured Notes templates should be created via the GUI for both standalone and integrated releases.

In addi on with related instrument nature's default values, the following a ributes should be defined for templates:

Usage-
Denomina on Nature Sub-nature
nature

Capital 2 - 2 - Fixed 75 - Capital Protec on Notes

Protected Notes Structured Income
Notes
Template

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Usage-
Denomina on Nature Sub-nature
nature

Capital 2 - 2 - Fixed 76 - Capital Protec ons Notes with Coupon

Protected Notes Structured Income
with Coupon Notes
Template

Reverse 2 - 19 - 77 - Reverse Conver ble Notes - Equity Linked

Conver ble Structured Conver ble Notes, 78 - Reverse Conver ble Notes - Bonds
Note Notes Bond Linked Notes,
Template 79 - Reverse Conver ble Notes - Credit Linked
Notes

Discount 2 - 2 - Fixed 80 - Discount Cer ficates

Cer ficate Structured Income
Notes
Template

TwinWin 2 - 2 - Fixed 81 - Twin Win Cer ficates

Cer ficate Structured Income
Notes
Template

Bonus Notes 2 - 2 - Fixed 82 - Bonus Notes

Structured Income
Notes
Template

Memory 2 - 2 - Fixed 83 - Memory Coupon Notes

Coupon Notes Structured Income
Notes
Template

Airbag 2 - 2 - Fixed 84 - Airbag Cer ficates

Cer ficate Structured Income
Notes
Template

MiniFutureTurb 2 - 22- Exo c 74 - Mini Futures Turbo

Structured Op on
Notes
Template

The expected a ributes for the main instrument templates are:

Sub-nature

Currency

Risk level

Market

For all other instrument a ributes, see sec on Structured Products.

OTC Deriva ves (Non-FX) Templates

Non-FX OTC Deriva ves templates should be created via T24 for integrated releases and via the GUI for standalone releases.

The following a ributes should be defined in TAP for these templates:

Denomina on Usage-nature Nature Sub-nature

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Denomina on Usage-nature Nature Sub-nature

Op ons 3 - OTC Deriva ves Template 3 - Op on None

Exo c Op ons 3 - OTC Deriva ves Template 22 - Exo c Op on None

Future 3 - OTC Deriva ves Template 6 - Future None

The expected a ributes for the main instrument template are (common for all natures except when specified):

A ributes Specific values

Code

Name

Denom

Reference Currency

Market

Tick Size

Contract Size

Delivery Method

Risk Level

Underlying instrument

Op on Style (Op ons and Exo c Op ons only)

For all other instrument a ributes, see sec ons Op ons, Exo c Op ons and Future Contracts.

OTC Deriva ves (FX) Templates

FX Deriva ves templates should be created via the T24 for integrated releases and via the GUI for standalone releases.

The following a ributes should be defined for these templates:

Denomina on Usage-nature Nature Sub-nature

Op ons 5 - OTC Currency Deriva ves Template 3 - Op on None

Exo c Op ons 5 - OTC Currency Deriva ves Template 22 - Exo c Op on None

Future 5 - OTC Currency Deriva ves Template 6 - Future None

The expected a ributes for the main instrument template are (common for all natures except when specified):

A ributes Specific values

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A ributes Specific values

Code

Name

Denom

Reference Currency

Market

Tick Size

Contract Size

Delivery Method

Risk Level

Op on Style (Op ons and Exo c Op ons only)

For all other instrument a ributes, see sec ons Op ons, Exo c Op ons and Future Contracts.

Structured Products Templates

Structured Products templates should be created via the T24 for integrated releases and via the GUI for standalone releases.

In addi on with related instrument nature's default values, the following a ributes should be defined for templates:

Denomina on Usage-nature Nature Sub-nature

Dual Currency 4 - Structured Product 5 - Money 85 - Dual Currency

Investment/ Template Market Investment/

Triple Currency 86 - Triple Currency

Investment Investment

Accumulators/ 4 - Structured Product 22 - Exo c 72 - Accumulator/

Template Op on
Decumulators 73 - Decumulator

FX Par cipa ng 4- Structured Product 22 - Exo c 94 - Par cipa ng

Forward/ Template Op on Forward/

TARKO 95 - Target Knock-Out

Forward

The expected a ributes for the main instrument template are:

Product A ributes Specific values

Dual Currency Code Type/Sybtype as defined in type en ty.

Investment/
Denom Reference Currency is base currency,
Triple Currency
Investment Type Underlying instrument stores Alterna ve Currency
1 in both cases.
Subtype
Alterna ve Currency 2 for TCI case is not expected
Reference in instrument template.
Currency

Underlying
instrument

Risk Level

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Product A ributes Specific values

Accumulators/ Code Type/Sybtype as defined in type en ty.

Decumulators Denom

Type

Subtype

Reference
Currency

Underlying
instrument

Risk Level

FX Par cipa ng Code Type/Sybtype as defined in type en ty.

Forward/
Denom Reference Currency is Currency Sold.
TARKO
Type Underlying instrument stores Currency Bought.

Subtype

Reference
Currency

Underlying
instrument

Risk Level

For all other instrument a ributes, see sec on Structured Products.

Fiduciary Deposit Templates

Fiduciary Deposit templates should be created via the GUI for the Fixed type FD template and via T24 for the No ce type FD template.

In addi on with related instrument nature's default values, the following a ributes should be defined for templates:

Sub-Nature Usage-nature Nature Sub-nature

No ce Fiduciary 6 - Fiduciary Deposit Template 5 - Money Market 116 - No ce Fiduciary

Fixed Fiduciary 6 - Fiduciary Deposit Template 5 - Money Market 117 - Fixed Fiduciary

Term Deposit Templates

Term Deposit templates should be created via T24 for an integrated stack.

In addi on to the related instrument nature's default values, the following a ributes should be defined for templates:

Sub-Nature Usage-nature Nature Sub-nature

No ce Deposit 7- Term Deposit Template 5 - Money Market 118 - No ce Deposit

Fixed Deposit 7- Term Deposit Template 5 - Money Market 119 - Fixed Deposit

Instrument Prices
Market quota ons are stored in the instrument price table. The following a ributes define a price:

currency

type: for example, "ask", "bid", "close",

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provider: for example, Reuters, Telekurs

term type: defines the price se lement; it is used in term markets

market: for example, NYSE, BELFOX,

date

You can enter several prices per day and per instrument. The above criteria are used to select the price with which to value the
instrument. (For more details on how this is done, refer to the WealthSuite Front Office - Por olio Management - Business
Func ons User Guide).

The remaining fields of this table are:

quote

price calcula on rule

There is a dis nc on between the "price" and the "quote". The quote is the figure provided by the market. The price is the
unitary value of the instrument. The way of ge ng from the quote to the price is the price calcula on rule.

Examples:

The quote of a Swiss Government bond is 102.25, and the price is 1.0225.

The quote of a US Treasury Bill is 7, and the price is 0.956.

Typically, the price is the number by which you mul ply the quan ty to obtain the value of a posi on (excluding accrued interest). The quote is the market
representa on of this number and is what is inpu ed and seen by the user.

Note: For a Signature Por olio instrument with nature as fund share, sub-nature as an external product, and a Price Calcula on rule as por olio specific price, the
system will not search for prices in instr_price but instead in en ty por olio_instr_price only.

Theore cal Valua on

Front Office – PM allows for the calcula on of theore cal prices (fair market prices) and analy c indicators (sensi vi es) for interest rate instruments, op ons, and
futures. These calcula ons are based on discoun ng the future flows of these instruments by using either a yield curve or analy c models such as the Black-Scholes
model for op ons.

The following AA keywords are available for these calcula ons:

AA_DF_BOND()

AA_DF_FLOW()

AA_DF_FUT()

AA_CC_FUT()

AA_BS_OPT()

AA_CRR_OPT()

AA_CRR_CONVBOND()

For more informa on about the use of these keywords, refer to the WealthSuite Front Office - Por olio Management - Script Language Reference Guide.

You can work with these keywords in the following ways:

I. Define a theore cal Valua on rule (refer to the WealthSuite Front Office - Por olio Management - Business Func ons User Guide) and
set it as the default theore cal Valua on rule by using the system parameter AA_DEF_VAL_RULE. In this case, all instruments with
Valua on rule set to Theore cal in their master data will be evaluated with their theore cal price in all business func ons.

II. Define format elements by using these script words, for example, in the valua on func on. In this case, you can also retrieve the
theore cal price (and other analy c indicators) for “quoted” instruments.

Instrument Chronological Data

Any instrument-related numerical data (other than prices) that changes over me can be stored in the instrument chronological data table. Examples are the price-
earnings ra o of a share, dura on of a bond, and vola lity of an index. In addi on to these predefined items, you can create user-defined values (refer to the
WealthSuite Front Office - Por olio Management - System Management Guide).

Some chronological data is used in hard-coded processing (e.g., the price calcula on factor is used to adjust price me series for corporate
ac ons). Other data is just for informa on purposes (e.g., price-earnings ra o).

All chronological data can be displayed using the INSTR_CHRONO() keyword. In some cases, you can also indicate that if no data is found for
this chronological data, it should be computed online. As this la er possibility can be me-consuming, it might be useful to compute
chronological data in batch mode (this is strongly recommended when the chronological data depends on me series, for example, Betas or
Vola lity).

For generic instruments (e.g., Money Market), it does not make sense to define data such as DURATION or MODIFIED DURATION in the
Chrono. The calcula on of these figures requires data, which is defined at the opera on level. Therefore, this data is not evaluated.

Instrument chronological data is computed using the Compute Instr Chrono func onality. You specify the instrument(s), nature of the chronological data, date,
and opera on to perform if the data already exists (recompute or not). The instrument chronological value is calculated by the func on Compute Instr Chrono

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according to the computa on method called through the script defined as default value.

Several system parameters determine the period in which user chronological data is valid (instrument chronological data only). The following table shows the system
parameters and the instrument chronos they affect:

System Parameter Instrument Chrono

STOCK_DATA_VAL_PERIOD Alpha

Beta

Number of Shares

Earnings per Share

Net Asset Value per Share

Price Earning Ra o

Vola lity

Volume

Correla on Coefficient

Determina on Coefficient R2

Covariance

BOND_DATA_VAL_PERIOD Average Life

Modified Dura on

Discount Yield

Dura on

Convexity

Current Yield

Yield-to-Maturity

Prepayment Rate

Scaling Factor

OPTION_DATA_VAL_PERIOD Delta

Theore cal Price

Gamma

Probability

Rho

Omega

Vega-Lambda

Theta

Holding Cost Sensi vity

Strike Price Sensi vity

Lookback Current Extreme

Asian Current Average

ACCR_INTEREST_VAL_PERIOD Accrued Interest

Accrued interest denominator

Accrued interest numenator

Determina on Coefficient R2

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System Parameter Instrument Chrono

USER_CHRONO_DATA_VAL_PERIOD Unpaid %

Margin

Price conversion factor

Minimum Ra ng

Price calcula on factor

The opera ons involving mul ple posi ons that increase the number of posi ons for a given date (e.g., por olio transfer opera on, adjustment opera on, locking
opera on, etc.) for an instrument connected to an instrument chrono are not supported. Some financial opera on risks calculate X mes the value of the mer
(where X is the number of posi ons on the date given).

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Correspondence Table
The following table relates market instruments to the various instrument natures (the table is not exhaus ve):

Instrument Nature Remarks

Ordinary stocks Stocks -

Preferred stocks Fixed Perpetual, no end date specified

Income

Stocks Monthly Stocks Cash movements and Report of posi ons

liquida on

Straight bonds Fixed -

Income

Stepped bonds Fixed Mul ple interest rate condi ons express the various coupon
Income rates

Perpetual bonds Fixed No end date

Income

Dual currency Fixed Income event is in a different currency form the instrument, a
bonds Income fixed exchange rate may be specified

Zero-coupon Fixed Interest rate is zero

bonds Income

Callable or Fixed Issue or redemp on event specifying early redemp on

pu able bonds Income possibili es

Floa ng rate Fixed Interest rate condi on nature is "Floa ng" and references a
notes Income benchmark

Sinking funds Fixed Issue or redemp on event specifying sinking fund schedule
Income

Bonds quoted as Fixed Instrument "Price calcula on rule" set to "actuarial yield"
a yield Income

Conver ble Conver ble -

bonds Bond

Stock op ons Op on Cash se lement or physical delivery

Currency op ons Op on Cash se lement or physical delivery

Futures op ons Op on Cash se lement or physical delivery

Op on bond Op on -
Bond

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Instrument Nature Remarks

Cum warrant Op on -
bond Bond

Time deposit Money Usually a "generic" instrument where the rate and expira on
Market date must be entered in the opera on.

Time loan Money Short posi on of a me deposit

Market

Cer ficate of Money If interest is paid at maturity, non-generic money market

deposit Market

CD with more Fixed -

than 1 coupon Income

Treasury bill Discount Instrument "price calcula on rule" is either "discount rate" or
Instrument "discount yield".

Bill of exchange Discount Instrument "price calcula on rule" is either "discount rate" or
Instrument "discount yield"

Banker’s Discount Instrument "price calcula on rule" is either "discount rate" or

acceptance Instrument "discount yield"

Repurchase Money Sale of a Money market instrument and simultaneous locking

agreements Market of repo instrument

Reverse repo Money Purchase of a Money market instrument and simultaneous

Market locking of repo instrument

Forward- Money Money market purchased or sold in the future

Forward Market

Forward rate FRA -

agreements

Bond futures Future -

Equity futures Future -

Interest rate Swap -

swaps

Currency swaps Forex Swap -

Currency IR Swap -
swaps

Stock indices Index Used as underlying or performance

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Stocks
A stock is defined as a security that:

does not pay a Fixed Income or an income based on interest rates.

has no accrued interest.

is generally not "redeemed" from the market at a specified date.

Characteris cs
An instrument of Stock nature is characterised by the descrip on of the security. It is associated to "income payment events" that define the dividend payments and
exchange events describing corporate ac ons such as conversions, exchanges, splits, or reverse splits.

Instrument Data
The following sec ons describe which data to enter and where:

Instrument Table

Income Payment Event Table

Exchange Event Table

Corporate Ac ons Overview Table

Corporate Ac ons Details Table

Instrument Table
The following is a list of a ributes that have a specific influence on or significance for this instrument nature:

Price Calcula on rule: indicates how to obtain the price of the stock from its market quote. In the case of stocks, the
default rule should indicate that the price is equal to the quote. However, the following rules could apply:

Quote: the quote is equal to the price.

Par ally paid stocks: note that you enter the face value in the instrument table (Modify Instrument) and the
unpaid percentage in the instrument chronological data sub-table.

Stocks quoted as a percentage of their face value. This rule is applied to Spanish stocks. Note that the face value is specified in the
instrument table.

Valua on rule: indicates how the quote of the instrument is found. The possible values are:

Quoted: the quote is found in the instrument price table.

Quote = 0: the instrument is never quoted and is for valua on purposes; the quote is assumed to be 0. In prac se, this case should not
occur for "classic" stocks.

Composite: the instrument is not quoted but the value of the instrument is found by summing the weighted value of its components.
The components may be entered by using the composi on func on where the component instrument, begin and end dates, as well as
quan ty (per unit) are inpu ed. The rank describes in which order the values of the component instruments are computed. (Not
relevant in this case).

Risk Nature: indicates possible risks that can incur by holding this security. For stocks, it is mostly an equity risk.

Payment Frequency: indicates the number of payment frequency units between two dividend payments (see below).

Payment Frequency unit: indicates the unitary period between two dividend periods. Select from:

Month

Quarter

Semester

Year

If a stock pays dividends every two months, the Payment Frequency must be set to "2", and the Payment Frequency Unit = Month. If these fields are not filled, the
dividends will not be projected in the cash flow projec on. If you enter a frequency, the last dividend with the "dividend projec on flag" set to Yes is projected at this
frequency (see sec on Income Payment Event Table).

Income Payment Event Table

The income payment event table is used to store dividends.

Projec on: this a ribute is used to indicate that the dividend is to be projected in future cash flows at the frequency specified in the main
instrument table. If the projec on flag is set to No, then the dividend is not projected. If the projec on flag is set to Yes, be sure to also
define the Frequency in the screen of the main instrument table; otherwise, the dividend will not be projected.

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Validity Date: date from which the dividend is valid. If a cash flow projec on is required from a date preceding the validity date, the
dividend will not appear.

Begin Date: the date on which the dividend goes ex. If you do not specify the First Coupon Date (see below), the Begin Date is also the
payment date of the dividend.

First Coupon Date: if specified, indicates when the value date of the payment of the dividend occurs. If not specified, the value date of the
dividend is the begin date. It is prac ced in some markets to define the beneficiaries of the dividend payments before the actual payment
date of the dividend. The holder of the stock before the ex-date is en tled to the dividend, even if the holder sells it before the payment
date. Conversely, if the holder acquired the stock a er the ex-dividend date but before the payment date, the holder is not en tled to the
current dividend.

Currency: the currency of the dividend. This defaults to the instrument currency.

Amount: indicates the amount of the dividend.

The combina on of an instrument, dividend Projec on flag, Validity Date, and Begin Date is unique. This means that an extraordinary dividend and a normal
repe ve dividend can be paid on the same day but the two repe ve dividends cannot occur on the same day. You can also use the Validity Date to specify that the
presumed dividend was a defined amount (event 1) and that the known dividend (event 2) was entered later, making the presumed dividend invalid from the Validity
Date of event 2.

Exchange Event Table

The exchange event table defines the corporate ac ons that will occur for the stock. Typically, these include conversion of the stock to another stock (due to a
takeover, for example), a split or reverse split in the value of the stock (2 for 1, for example), stock dividends, etc. The data is used in the Journal and Event
Genera on func ons.

The data model lets you enter events that occur over a certain period (between event begin and end dates); however, in this release the events are deemed to occur
on the begin date.

A ribute Descrip on

Begin Date Date from which the event occurs.

Priority Indicates in which order same day events are processed. Several events can
occur on the same day for the same stock. For example, stock A could be
converted into 5 shares of stock B and 2 shares of stock C. In this case, you
enter two exchange events. The former (priority 1) would a ribute the B shares
without replacing stock A, the la er (priority 2) would replace stock A by stock
C.

Nature Nature of the Exchange event. The current permi ed values that apply to stocks
are:

Conversion / exchange

Split

Reverse split

A ribu on / stock dividend

Propor onal A ribu on

A ribu on (theore cal price)

Replacement Select this check box if you want the ini al stock to be withdrawn from the
Flag posi on. If selected (the flag is set to Yes), the posi on is withdrawn. If you do
not select the check box (the flag is set to No), the original posi on remains.

Reference Indicates for how many units of original stock the event occurs.
Quan ty
Example: For the exchange of 2 units of stock A for 3 units of stock B, the
reference quan ty is 2.

Quan ty of When the exchange involves another instrument (as opposed to just cash), this
New quan ty describes the number of new instruments to be acquired per reference
Instrument quan ty of original instrument. In the previous example, this is 3.

New When the exchange involves another instrument (as opposed to just cash),
Instrument indicates the name of this instrument; in the previous example, this is stock B.

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A ribute Descrip on

Physical Indicates whether the exchange of instruments as actually realised or the

Delivery Flag exchange results in a cash se lement, where the amount of cash is dependent
on the values of the two instruments (the la er case is not yet implemented).

Quote In the case of an exchange involving cash payments, contains the amount of
cash per reference quan ty of the original instrument. A posi ve quote
indicates that the amount is received by the holder of a long posi on, a
nega ve one indicates an amount to be paid.

Currency Indicates the currency of the quote or the currency of the cash se lement
amount described above. If this a ribute is not indicated, it is assumed to be
the currency of the stock.

Rounding Indicates what is rounded:

Level
new quan ty

new round lot

Rounding Rule The permi ed values are:

Up

Down

Nearest

New Unit in which rounding is done (e.g. 0.01, 0.5, etc.)

Instrument
Minimum
Denomina on

Odd Lot If rounding occurs, this indicates what is done with the quan ty le over. The
Compensa on choices are:

0: Lost: the odd quan ty is lost

1: Cash Compensa on New: the odd quan ty of new instrument is

cash compensated

2: Kept: the odd quan ty is kept in the por olio

3: Cash Compensa on Old: the odd quan ty of old instrument is cash

compensated

The combina on of an Instrument, Validity Date, Begin Date, Priority, and Nature must be unique.

Corporate Ac ons Overview Table

For Ini al Public Offers (IPOs), the event type should be set as IPO.

Corporate Ac ons Details Table

The following is a list of a ributes that are specific to Ini al Public Offers (IPOs):

A ribute Descrip on

First Dealing Shares will be available for secondary market trading on this date.
Date

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A ribute Descrip on

IPO Issue Type The permi ed values are:

Single Bid

BookBuild

When set to Single Bid, only one bid can be submi ed per order. The bid can be
placed only at the Subscrip on Price.

When set to BookBuild, mul ple bids can be placed however, the price must be
within the price band (Minimum Subscrip on Price, Maximum Subscrip on
Price)

IPO Lot Size The minimum number of shares that can be bid. Shares can only be bid in
mul ples of the IPO Lot Size.

Minimum Maximum Subscrip on Amount for a book building IPO.

Subscrip on
Amount

Minimum Minimum Subscrip on Price for a book building IPO.

Subscrip on
Price

Maximum Maximum Subscrip on Amount for a book building IPO.

Subscrip on
Amount

Maximum Maximum Subscrip on Price for a book building IPO.

Subscrip on
Price

Subscrip on Subscrip on opens on this date.

Begin Date

Subscrip on Subscrip on closes on this date.

End Date

Subscrip on Subscrip ons cannot be submi ed a er this me.

End Time

Subscrip on Subscrip on Price for a Single IPO.

Price

Response New IPO orders are not allowed a er this date.

Deadline Date

Valua on
Stocks are valued according to their Valua on rule. Typically, stocks are quoted instruments.

Analy cal Indicators

Analy cal indicators that can be computed depend mainly on sta s cal tools, in par cular, the keywords STAT() and REGR().

STAT() computes the mean, variance, and standard devia on of any me series (e.g., instrument prices). The number and frequency of the
readings are passed as the parameters of the keyword.

REGR() computes the alpha, beta, covariance, correla on coefficient, and determina on coefficient (r2) of 2 mes series (e.g., instrument
prices). The number and frequency of the readings, as well as the index used, are passed as the parameters of the keyword.

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Addi onally, you can also use the CURRENT_YIELD() keyword for stocks.

For more detailed informa on, refer to the WealthSuite Front Office - Por olio Management Script Language Reference Guide.

Chronological Data
Apart from the above-men oned analy cal indicators that can be computed or imported and stored in the instrument chronological data, the following items can be
useful for stocks:

earnings per share

net asset value per share

price-earnings ra o

volume: daily trading volume

price conversion factor: used in me series to adjust previous prices for corporate ac ons

Risk Posi on
Typically, the Risk Nature of this kind of instrument is "equity". Perhaps, for mining companies, it could be "commodity". In these cases, the risk posi on in a stock is
the same as the accoun ng posi on. However, if this instrument is the underlying instrument of a deriva ve contract, it could be a "hybrid" risk instrument. In this
case, the components are shown in the Risk View.

Journal
The journal typically shows any non-projected dividends that occur in the period as well as all projected dividends (see sec on Income Payment Event Table), even if
they refer to a period before the journal. You can also find corporate ac ons that result in a modifica on of the posi on. However, for the me being, these new
posi ons do not generate further cash flows. An example of this limita on is as follows: Suppose Stock A is converted to Stock B in a month's me. The journal shows
this conversion but not the expected cash flows resul ng from Stock B.

Special Cases
Preferred shares with a dividend defined as a percentage of the nominal value should be considered as perpetual bonds.

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Fixed Income
Fixed income instruments include all capital market instruments that have a specified payment schedule. Most are tradi onal bonds and promise to pay specific
amounts at specific mes. Typically, this means pre-specified dates for the payment of interest and a specific date for the repayment of principal.

Characteris cs
An instrument of Fixed Income nature is characterised by the descrip on of the security, and associated events that describe the issuance, redemp on, payment of
income, interest rate condi ons and any exchange events that could occur in the life of the instrument.

Note that the guarantee table is used to indicate the name of the ins tu on which is the guarantor of the loan. This ins tu on has to be previously defined in the
third party table.

Instrument Data
The following sec ons describe which data to enter and where:

Sub-natures

Specific Pricing Data

Interest Rate Condi ons

Coupon Payment Schedule

Accrued Interest Computa on

Redemp on

Exchanges and Conversions

Corporate Ac ons Overview Table

Corporate Ac ons Details Table

Sub-natures
Sub-natures of Fixed Income provide more informa on about the instrument. They are used as a support for default values on accrual rules and coupon payment
schedules (e.g., US Treasury bonds are semi-annual actual/actual bonds). They are also used to apply market conven ons to analy cal computa ons.

Examples:

For US treasury and agency bonds, the yield is rounded to eight decimal places.

For corporate and municipal bonds, the yield is rounded to five decimal places.

For corporate bonds, whenever the price is equal to the redemp on price, the yield is equal to the coupon rate.

For Italian bonds (BTPs), withholding taxes are charged on the issue discount.

Specific Pricing Data

Price calcula on rule: Indicates how to obtain the price of the instrument from its market quote. In the case of Fixed
Income, the default rule should indicate that the price is equal to a percentage of the quote. However, the following
rules apply:

Quote/100: The price is the quote expressed as a percentage.

Par ally Paid Bonds: This rule applies to bonds where the full nominal value has not been issued. Note that the face
value is found in the instrument and the unpaid percentage is found in the instrument chronological data sub-table.

Bonds Quoted in Units: This rule applies to some French bonds where the quan ty is the number of nominal values in
the posi on. An example is a bond with a 250 EUR face value quoted at EUR. This is equivalent to a price of 1.06. Note
that the amount of ‘face value’ must be entered in the instrument defini on.

Actuarial Yield: The price is computed according to a rate and to the formula of the yield to maturity.

Add-on Rate: The price is computed according to the rate (introduced in the price table or taken from a reference rate).
Price = (1+coupon*life)/(1+quote*remaining life)

Quote/100 with AI: The price is equal to the quote expressed in percent including accrued interests.

Quote in Unit with AI: The price includes the accrued interests.

Price Calcula on Factor: The price is computed according to the quote and a factor (taken from the chrono table): Price
= quote * factor.

Quote in Unit: The price is the quote divided by the face value. This method is especially used for Fixed Income and
Conver ble Bonds.

Important: The Instrument’s Quote is always considered as dirty. In other words, accrued interests are included in the quote.

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The user can consider a dirty price or a clean price:

In case of dirty price, price = quote / face value. The accrued interest flag of the instrument must be set to N.

In case of clean price, price = quote/ face value – AI (accrued interests). The accrued interest flag of the instrument
must be set to Y.

Valua on rule: Indicates how the quote of the instrument is found. The possible values are:

Quoted: The quote can be found in the instrument price table.

Quote=0: The instrument is never quoted and for valua on purposes, the quote is assumed to be 0. In prac se,
this case should not occur for classic bonds.

Quote=1: The instrument is never quoted and for valua on purposes, the quote is assumed to be 1.

Composite: The instrument is not quoted but the value of the instrument is found by summing the weighted value
of its components (not relevant in this case).

Theore cal: This possibility is used once yield curve processing is used.

Reference Instrument: The instrument is quoted according to a reference instrument (e.g., bond, rate, etc.). It is used mainly for
instruments without regular quota on, when the price should be derived from the price of the reference instrument. In this case, no
prices are maintained in the price sub-table. The reference instrument is given in the instrument table, and a margin, if required, in
the instrument chronological data.

Face Value: Used for bonds quoted in units.

Issue Price: Used to compute issue discount for Italian bonds.

Interest Rate Condi ons

Data
If there is only one coupon rate and it is fixed throughout the life of the instrument, you can enter the rate in the instrument table; otherwise,
you must enter it in the interest rate condi on table.

Interest Rate (in the Instrument table): Single fixed rate.

Coupon Strike Level (%) – Used to define the coupon strike level in percentage terms for memory coupons. This
percentage will be mul plied with the ‘Exercise Quote’ (defined in the instrument) to calculate the coupon strike level
as an amount.

Coupon Strike Level – Used to define the coupon strike level as an amount for memory coupons. This amount will be
divided by the ‘Exercise Quote’ (defined in the instrument) to get the coupon strike level as a percentage.

Interest Calcula on Rule (not used)

Minimum Interest Rate (not used)

Maximum Interest Rate (not used)

Benchmark (not used)

First Observa on Date (not used)

Interest rate condi on sub-table: Other cases, such as stepped coupons.floa ng rate coupons, range accruals, digital and
memory coupons.

Begin Date: Date from which the rate applies.

End Date: Last date on which the rate applies.

Interest Calcula on Rule: Defines if the interest rate condi on describes a fixed or a floa ng condi on or range accrual
or digital or memory condi on.

Range accruals - Interest is paid based on number of days (in a coupon period) the benchmark values are within
a par cular range.

Digital coupons – Interest is paid only if the benchmark on a par cular observa on date (in a coupon period) is
at least equal to or above the defined minimum threshold rate.

Memory Coupons - Interest for a period is paid (in a coupon period) only if the underlying instrument’s price is
at least equal to or above the defined coupon strike level. If a coupon is not paid for a period, the memory
mechanism will remember this and will pay the coupon in the next period if the above men oned condi on is
met, else, these coupon payments accrue ll the period where the condi on is met. If the condi on is not met
even in the last coupon period then these accrued coupon payments will not be paid at all.

First Benchmark Date: Used to define the observa on date for the first coupon period of the instrument. This will be
used in conjunc on with ‘Payment Frequency Unit’ and ‘Payment Frequency’ to calculate the observa on dates for the
subsequent coupon periods. This is used in digital coupons, memory coupons and in certain cases of floa ng coupons.

Interest Rate: Fixed interest rate for the period.

Benchmark: Rate instrument from which the interest rate is derived (e.g., 3 month Libor).

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Mul plica ve Margin: Factor by which the benchmark rate is mul plied.

Addi ve Margin: Spread added to the benchmark rate.

Minimum Interest Rate: Floor applicable to a floa ng rate and also used to define the lower boundary of range for
range accruals and digital coupons.

Maximum Interest Rate: Cap applicable to a floa ng rate and also used to define the upper boundary of range for range
accruals.

You can combine fixed and floa ng rate condi ons. For example, you could define a single floa ng rate condi on for the life of the instrument, then, as the coupons
are fixed, enter the fixed rate condi ons. Where a fixed rate is found, it takes precedence over the floa ng rate for that period.

For floa ng rate notes, the floa ng rate is defined at the instrument level, and further referenced in the interest rate condi on sub-table (benchmark field), with an
interest rate calcula on rule set to Floa ng. The frequency of the floa ng rate is defined in the floa ng rate instrument (Coupon Frequency and Frequency Unit take
the same values by default). This is also the case for its coupon conven on and accrual rule. Addi ve margin is entered as a whole number (since it is added to a rate
that has a Price Calcula on rule of quote / 100).

Note that reverse rates can be defined with margins of less than 1.

If there are mul plica ve and addi ve margins, Front Office – PM mul plies first, and then adds.

Notes on Begin Dates and End Dates

Begin dates
To generate correct future cash flows or income opera ons or to compute accurate measures (such as yield-to-maturity), it is important to correctly set the Interest
Rate Condi ons (IRC) on the Begin and Validity dates.

If there are several IRCs for the same instrument, priority is given to the IRC that has the most recent Begin date. If the IRC with the most recent Begin date has an
End date prior to another IRC, then this is the latest IRC that should be taken into account.

Example 1:

IRC_1

Begin Date: 01/01/2008, no End Date

IRC_2

Begin Date: 01/02/2008, no End Date

Therefore, the Interest Rate Condi on that applies is IRC_2.

Example 2:

IRC_3

Begin Date: 01/01/2008, no End Date

IRC_4

Begin Date: 01/02/2008, End Date: 29/02/2008

Therefore, IRC_4 only applies between 01/02/2008 and 29/02/2008. Before 01/02/2008 and a er 29/02/2008, IRC_3 applies.

Example 3:

FRANCE TELECOM 7¼% issued on 14/03/01, maturity 14/03/08, with an annual coupon payment.

If you set your instrument with this informa on and want to represent a step-up coupon from the second payment date, you must enter the interest condi on as
follows:

1. Interest Condi on

Begin Date: 14/03/2001

Validity Date: 14/03/2001

Interest Calcula on Rule: Fixed

Interest Rate: 7.25%

End Date: 14/03/2003

2. Interest Condi on

Begin Date 14/03/2003

Validity Date: 14/03/2001

Interest Calcula on Rule: Fixed

Interest Rate: 7. 50%

End Date: 14/03/2008

If, by mistake, you define the second interest condi on as:

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1. Interest Condi on

Begin Date: 14/03/2001

Validity Date: 14/03/2001

Interest Calcula on Rule: Fixed

Interest Rate: 7.25%

2. Interest Condi on

Begin Date 14/03/2001

Validity Date: 28/03/2002

Interest Calcula on Rule: Fixed

Interest Rate: 7. 50%

There is no computa on of the sensi vity measure because Front Office – PM does not know un l which date the first condi on applies and when the second
begins.
End dates
It is recommended that an End date is not specified in the IRC so that the interest rate will apply un l the Begin date of the next fixed condi on. If you must set an
End date, then it must be equal to the Begin date of the next fixed condi on. In the example above, the first conven on ends on 14 March 2003 and the next
conven on starts on 14 March 2003.

Coupon Payment Schedule

The payment schedule depends on:

four dates

the payment frequency

the "end of month" conven on

This data can either be maintained in the main instrument table or in the income payment event sub-table.
Instrument table level
In the main instrument table, the following a ributes are relevant for the coupon payment schedule:

A ribute Descrip on

Dated date Date on which accrued interest starts accruing. If not specified, the begin date of
the instrument is used.

First Indicates when the first coupon is paid. From this date onwards, the coupons are
Coupon deemed regular.
Date
If the first coupon date is not specified:

For accrual rules that existed prior to Release 4.10, the first coupon is
assumed to be a regular coupon.

For accrual rules added in and a er Release 4.10, the first coupon is an
irregular one and the last one is assumed as regular.

For informa on about accrual rules, see sec on Accrual Rules.

First Ex- Date on which the holders that are en tled to the first coupon are determined.
Date Between this date and the first coupon date, accrued interest is nega ve. The
number of days between the first ex date and the first coupon date is repeated
throughout the life of the instrument as the ex-period. If this period changes over
me, it is necessary to create discrete income payment events.

Last Date of the last coupon. If not specified, defaults to the end date of the
Coupon instrument.
Date

Payment Indicates the number of "payment frequency units" between two coupon
Frequency payments (see below).

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A ribute Descrip on

Payment Indicates the unitary period between two coupon periods. The possible values are:
Frequency
Unit Month

Quarter

Semester

Year

If coupons are paid every six months, you can enter the following: Payment
Frequency = 1, Payment Frequency Unit = Semester.

End of End of month conven on is not currently applied to Front Office – PM processes.
Month
Conven on When end of month conven on support is added, the End of Month Conven on
field can be used to indicate whether coupons that occur at the end of months are
repeated on the same date or at the end of month. For example, if we have a semi-
annual coupon that pays on the 28th of February 1995, the payment schedule is:

last: 28/02/95 - 31/08/95 - 29/02/96

same: 28/02/95 - 28/08/95 - 28/02/96

last 360: 28/02/95 - 30/08/95 - 28/02/96

Finally, for instruments that pay the coupon in a different currency from that of the principal:

A ribute Descrip on

Fixed Exchange Rate (exchange event sub- Rate of exchange that is applied to the coupon.
table)

Income event table level

If the interest rate changes over me, or coupons are paid on an irregular basis, the income event table must be used to store the coupon schedule informa on. In
this case, the coupon-specific a ributes in the main interest table should not be filled in order to avoid confusion.

A ribute Descrip on

Projec on The Projec on field determines if this coupon is projected in future cash flows at
the frequency specified in the instrument table. If the flag is set to No, the dividend
is not projected. If the flag is set to Yes, but the frequency in the Instrument is not
defined, the dividend will not be projected either.

Validity Indicates the date from which this dividend is valid. If a cash flow projec on is
Date required from a date preceding this validity date, the dividend will not appear.

Begin This is the date on which the dividend goes ex. If no “first coupon date” is specified,
Date this is also the payment date of the dividend.

First If specified, indicates when the value date of the payment of the dividend occurs. If
Coupon not specified, the value date of the dividend is the begin date. It is prac ced in some
Date markets, to define the beneficiaries of the dividend payments before the actual
payment date of the dividend. The holder of the Fixed Income before the ex-date is
en tled to the dividend, even if the holder sells it before the payment date.
Reciprocally, if the holder acquired the Fixed Income a er the ex-dividend date but
before the payment date, the holder will not be en tled to the current dividend.

First Ex- Date on which the holders that are en tled to the first coupon are determined.
Date Between this date and the first coupon date, accrued interest is nega ve. The
number of days between the first ex date and the first coupon date is repeated
throughout the life of the instrument as the ex-period. If this period changes over
me, it is necessary to create discrete income payment events.

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A ribute Descrip on

Currency Indicates the currency of the dividend. It is suggested that this defaults to the
instrument currency.

End Indicates un l which date the event is valid. If not specified, then it will occur un l
Validity the maturity of the bond.
Date

Accrued Interest Computa on

Overview
On top of the previous coupon informa on, the following Instrument data has a direct impact on accrued interest:

Accrued Interest Flag: Select if you want accrued interest to be computed for this instrument.

Accrual Rule: Day count method used.

Interest Rate Conven on: Specifies whether to use the simple MM method or the Compound simple method to compute
the accrued interests.

This last parameter defines which formula is going to be used. The formula for calcula ng accrued interest is as follows:

Simple interest (current method):

Compound interest (old method):

Where:

N = Nominal = Quan ty

r = Annual interest rate

A = Number of days per year (according to the Accrual Rule)

dn = current date where n Î [0,N] with N = instrument end date

di = issue date for a money market, last coupon date for a Fixed Income, last payment date for a swap

(dn - dI) is given in number of days

Note that this formula gives accurate accrued interest only for a daily compound period. This method can only be applied by the system with the addi onal accrual
rules explained in sec on Accrual Rules.

However, the next formula handles first compound interest individually based on the period specified at Compound Frequency Unit and capitalises them all together
sequen ally. This method has the advantage that it considers the exact number of days for the period. This method can only be applied by the system with the
accrual rules explained in sec on Accrual Rules.

Compound interest (new method):

Where:

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i = first compounding period included in set [1,n]

n = number of compounding periods per year

r = annual interest rate in decimal

yf = year frac onal

Example 1
You buy 100,000 bonds on 31/12/2007 with a 7% coupon rate, a Begin date 31/12/2007 and an Accrual Rule 'Actual/365'. A valua on is performed on 03/01/2008.
The accrued interest is calculated on a daily frequency. The result gives:

Simple method:

Coupont = Quan ty * t * interest rate/N - ∑_(t=1)^(t-1)▒Coupont

Coupont = Quan ty * t * interest rate/N - ∑_(t=1)^(t-1)▒Coupont

1st day Simple rate @ 0.07 * 1/365 @ 1.00019178

1st day AI @ (1.00019178 * 100000) – 100000 @ 19.1781

2nd day Simple rate @ 0.07 * 2/365 @ 1.00038356

2nd day AI @ (1.00038356 * 100000) – 100000 @ 38.3562

3rd day Simple rate @ 0.07 * 3/365 @ 1.00057534

3rd day AI @ (1.00057534 * 100000) – 100000 @ 57.5342

Total of principal and interest on valua on date 03/012008 would be

@ 100000 + 57.5342 @ 100057.5342

Compound method (old):

1st day Compound rate @ ((1 + 0.07) 1/365 – 1) @ 1.00018538

1st day AI @ (1.00018538 * 100000) – 100000 @ 18.5383

2nd day Compound rate @ ((1 + 0.07) 2/365 – 1) @ 1.00037080

2nd day AI @ (1.00037080 * 100000) – 100000 @ 37.0801

3rd day Compound rate @ ((1 + 0.07) 3/365 – 1) @ 1.00055625

3rd day AI @ (1.00055625 * 100000) – 100000 @ 55.6253

Total of principal and interest on valua on date 03/012008 would be

@ 100000 + 55.6253 @ 100055.6253

Compound method (new):

Daily Compound rate @ (1 + 0.07*1/365) @ 1.00019178

1st day capitalised rate @ 1.00019178

1st day AI @ (1.00019178 * 100000) – 100000 @ 19.1781

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Daily Compound rate @ (1 + 0.07*1/365) @ 1.00019178

2nd day capitalised rate @ 1.00019178 * 1.00019178 @ 1.00038360

2nd day AI @ (1.00038360 * 100000) – 100000 @ 38.3598

3rd day capitalised rate @ 1.00019178 * 1.00038360 @ 1.00057545

3rd day AI @ (1.00057545* 100000) – 100000 @ 57.5453

Total of principal and interest on valua on date 03/012008 would be

@ 100000 + 57.5453 @ 100057.5453

Example 2
You buy 100,000 bonds on 31/12/2007 with a 7% coupon rate, a Begin Date 31/12/2007 and an Accrual Rule 'Actual/365'. A valua on is performed on 29/02/2008.
The accrued interest is calculated on a monthly frequency. The result gives:

Compound method (new):

Monthly Compound rate:

Number of days on 31/01/2008 @ (1 + 0.07*31/365) @ 1.00594521

Capitalised rate on 31/01/2008 @ 1.00594521

AI on 31/01/2008 @ (1.00594521 * 100000) – 100000 @ 594.5205

Number of days on 29/02/2008 @ (1 + 0.07*29/365) @ 1.00556164

Capitalised rate on 29/02/2008 @ 1.00594521 * 1.00556164 @ 1.01153991

AI on 29/02/2008 @ (1.01153991 * 100000) – 100000 @ 1153.9914

Total of principal and interest on valua on date 29/02/2008 would be

@ 100000 + 1153.9914 @ 101153.9914

In some markets, accrued interest must be rounded. In par cular, for French government bonds, unitary accrued interest is rounded to the third decimal place; for
Australian government bonds, the accrued interest amount is rounded to the nearest $10. The following are used to define the rounding of accrued interest:

Round unitary interest: Determines if accrued interest is rounded.

Interest rounding: Determines how accrued interest has to be rounded.

Interest rounding unit: Determines the rounding precision level y (e.g., 0.01, 10, etc.).

Accrued interest computa on for range accruals, digital and memory interest calcula on rules
Range Accruals

The coupon period for which the accrued interest is calculated is retrieved and the date on which the valua on is done (‘Ini al date’ a ribute of the ‘Domain -
Valua on’) is within a par cular coupon period.

Accrued interest on the valua on date for the concerned coupon period = (Fixed interest rate/n) * (No. of days inside/No. of days in the period) * Q

Where:

Fixed interest rate = Fixed interest rate per annum defined in the ‘Interest Rate Condi on’ sub-table.

n = number of coupon periods in a year.

No. of days in the period = the total number of days in the coupon period.

Q = quan ty of posi on

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No. of days inside = the number of days the benchmark values were inside the defined boundaries in the concerned coupon period.

Where:

= the value of the benchmark at date i.

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if value is available

and not in or if no

value is available. A worst case scenario is applied by default for unknown values and for future
occurrences. The minimum and maximum values are defined in the ‘Minimum Interest Rate’ and ‘Maximum Interest Rate’ a ributes of the ‘Interest Rate Condi on’
sub-table.

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if

value is available and in . ‘i’ is a date.

SD = the start date of the coupon period for which accrued interest is being calculated.

T = the date on which the valua on is being calculated. If ‘T’ and ‘SD’ are same, “no. of days inside” should be calculated only once for that date and not twice.

Example

You buy 100,000 bonds on 31/12/2017 with a 10% coupon rate, a Begin date '31/12/2017', payment frequency unit 'Year', Benchmark 'Euribor 12M', Minimum
interest rate '2%', Maximum interest rate '3%' and an Accrual Rule 'Actual/360'. A valua on is performed on 12/02/2019. The number of days the benchmark was
inside the range from 01/01/2019 to 12/02/2019 is 28 days (Seen from the price table of the Benchmark).

Accrued interest on 12/02/2019 @ 10% * (28/360) * 100000 @ 777.78

Digital Coupons

IF ( is available and >= Minimum Value) and ‘Ini al Date’ > ‘First Benchmark Date’

(Fixed interest rate/n) * Q * (No. of days accrued /Total no. of days)

Else ‘0’.

Where:

= the value of the benchmark on the observa on date of the concerned coupon period. For the concerned coupon period, the observa on date can be calculated
using ‘First benchmark date’ (from 'Interest Rate Condi on' sub-table), payment frequency unit and payment frequency value from ‘Instrument’ table.

Minimum value = ‘Minimum Interest Rate’ defined in the ‘Interest Rate Condi on’ sub-table.

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Fixed interest rate = Fixed interest rate per annum defined in the ‘Interest Rate Condi on’ sub-table.

n = number of coupon periods in a year.

Q = quan ty of posi on.

No. of days accrued = Number of days between the ‘Start Date’ of the concerned coupon period and valua on date.

Total no. of days = Total number of days in the concerned coupon period.

Example

You buy 100,000 bonds on 31/12/2017 with a 10% coupon rate, a Begin date '31/12/2017', payment frequency unit 'Year', Benchmark 'Euribor 12M', Minimum
interest rate '2%', First observa on date '28/12/2018' and an Accrual Rule '30/360'. A valua on is performed on 28/12/2018. The benchmark rate on the observa on
date is 4% (Seen from the price table of the Benchmark).

Accrued interest ll 27/12/2018 @ 0 (as it is prior to the observa on date)

Accrued interest on 28/12/2018 @ 10% * (358/360) * 100000 @ 9944.44

Memory Coupons

Retrieve all the coupon period(s) which occur before the above retrieved coupon period. Then, for each of these coupon periods, calculate Coupont (star ng from
the first coupon period of the concerned instrument and proceeding in that sequence)

Where:

t = coupon period number of the instrument.

Coupont = Coupon amount for a par cular coupon period.

Q = quan ty of posi on.

N = number of coupon periods in a year.

(t-1) = the coupon period number. If ‘Coupont’ is being calculated for second coupon period, (t-1) is ‘1’. If ‘Coupont’ is being calculated for first coupon period, (t-1) is
‘0’ etc.

Interest rate =

IF (Share Pricet is available and >= Coupon Strike Level)

Interest Rate = Fixed Interest Rate (‘Interest Rate’ a ribute of the ‘Interest Rate Condi on’ sub-table)

Else ‘0’.

Where:

Share Pricet = Share price of the underlying instrument (for 'Single' category) on the observa on date of a par cular coupon period; the observa on date can be
calculated using ‘First benchmark date’ (from 'Interest Rate Condi on' sub-table), payment frequency unit and payment frequencies value from ‘Instrument’ table.
For average and worst-of category, Instrument composi on table is used and the price of the average basket/ worst-of instrument as on the observa on date is
calculated and used for comparison purposes.

Coupon Strike Level = ‘Coupon Strike Level’ from ‘Instrument’ table.

A er calcula ng the values for all the concerned coupon periods, the last coupon period whose ‘Coupont’ value was greater than zero has to be noted. Consider this
coupon period as ‘Dn’.

Accrued interest =

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Where:

Couponi = Accrued interest for the concerned coupon period.

Q = quan ty of posi on.

N = number of coupon periods in a year.

Interest rate =

IF (Share Pricei is available and >= Coupon Strike Level)

and ‘Ini al Date’ > ‘Observa on Date’

Interest Rate = Fixed Interest Rate

(‘Interest Rate’ a ribute of the ‘Interest Rate Condi on’ sub-table)

Else ‘0’

Where:

Share Pricei = Share price of the underlying instrument (for 'Single' category) on the observa on date of a par cular coupon period; the observa on date can be
calculated using ‘First benchmark date’ (from 'Interest Rate Condi on' sub-table), payment frequency unit and payment frequency value from ‘Instrument’ table. For
average and worst-of category, Instrument composi on table is used and the price of the average basket/ worst-of instrument as on the observa on date is
calculated and used for comparison purposes.

Coupon Strike Level = ‘Coupon Strike Level’ from ‘Instrument’ table.

Coupon = Q (same as defined above) * interest rate.

Where:

Interest rate =

IF (Share Pricei is available and >= Coupon Strike Level)

and ‘Ini al Date’ > ‘Observa on Date’

Interest Rate = Interest Rate/N

Else ‘0’

n = Number of coupon periods between Dn and Di.

No. of days accrued = Number of days between the ‘Start Date’ of the concerned coupon period and valua on date.

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Total no. of days = Total number of days in the concerned coupon period.

Example

You buy 100,000 bonds on 31/12/2016 with a 10% coupon rate, a Begin date '31/12/2016', payment frequency unit 'Year', Underlying category 'Single', Underlying
'IBM', Coupon strike level '70%', Exercise quote '10', First observa on date '28/12/2017' and an Accrual Rule '30/360'. A valua on is performed on 28/12/2018. The
price of IBM as of the observa on dates are '6' (as on 28/12/2017) and '8' (as on 28/12/2018).

Accrued interest ll
@ 0 (as it is prior to the observa on date)
27/12/2017

Accrued interest on @ 0 (as price of the underlying is below the coupon strike level on
28/12/2017 the observa on date)

Accrued interest ll @ 0 (as it is prior to the observa on date)

27/12/2018

Accrued interest on @ 10000 (previous year accrual) + 10% * (358/360) * 100000 + @

28/12/2018 19944.44

Accrued Income Calcula on for Canadian Bonds

Canadian bond Yield is calculated on the same frequency as the coupon frequency except for the last period. In the last period, simple interest is applied using an
ACT/365 day conven on. The odd periods are calculated using the ACT/365. For most se lement scenarios, accrued income is calculated as (number of days from
previous coupon to se lement) / (365 / coupon frequency) * (coupon / coupon frequency) * face. However for scenarios where accrued days is greater than (365 /
coupon frequency), the accrued income is calculated as (1-(days from se le to next coupon payment) / (365 / coupon frequency)) * (coupon / coupon frequency) *
face.

To iden fy the Canadian bond the sub-nature of the instrument should be defined either of

6 - Canadian government bond

7 - Canadian govn, Bnk of Can conv

If the Valua on Date is included into the last coupon period [Last Coupon Begin Date – Last Coupon End Date], the Accrued Interest must be computed on a ACT/365
basis as:

For any Valua on Date less than the Last Coupon Begin Date, the Accrued Interest computa on remains unchanged.

Accrued Interest Calcula on for Australian Bonds

The Australian bonds should be set with the right configura ons in the instrument en ty so that the accrued income calcula on process has the ability to calculate
unitary level.

The instrument should be set with the following

Round unitary interest: Yes

Interest rounding unit: 0.00001

Redemp on
Front Office – PM handles various redemp on schedules.

Final Redemp on
For a bullet point redemp on, the informa on can be stored in the main instrument table. In more complicated cases, the issue/redemp on event table must be
used to store the relevant informa on.
Instrument table level
In the main instrument table, the following a ributes are relevant for the redemp on:

A ribute Descrip on

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A ribute Descrip on

End Date The date at which the instrument ceases to exist. In theory, there must be no
posi ons in this instrument a er the end date. In prac ce, however, due to
possible administra ve or financial delays, this may not always be the case. The
End Date field is not mandatory but if completed it must be greater than or equal
to the Begin Date.

Redemp on Indicates the market quota on of the redemp on quote.

Quote

Iss/Redm Event table level

If the issue / redemp on event table is used, the following data is mandatory:

A ribute Descrip on

Nature Final redemp on indicates the amount paid out at the bond’s maturity.

Validity Indicates the date from which this final redemp on is valid.
Date

Begin Date at which the final redemp on occurs. This may be equal to the end date of the
Date Fixed Income.

Quote Market descrip on of the price of a financial instrument at redemp on.

Effec ve The date on which the redemp on is confirmed by the issuer (this forces the Journal
Expira on and analy cs to use the final redemp on rather than earlier ones).
Date

End Date Last date at which the event occurs. If the event has no end date, this is deemed to
be the begin date for non repe ve events and the date on which a par al
redemp on has withdrawn all outstanding reimbursements for repe ve events.

Price Price at which a financial instrument is issued or redeemed.

Call or Put Redemp on

In every case, you must create Issue or Redemp on events with the following characteris cs:

Nature: Call redemp on or put redemp on

Begin date: Date of the redemp on

Quote

Effec ve date: Date on which the redemp on is confirmed by the issuer (this forces the journal and analy cs to use this
redemp on rather than another)

The number of call or put redemp on events is not limited.

Sinking Fund
You can either enter sinking fund provisions discretely or when the frequency and redemp on quote and percentage redeemed are constant in one redemp on
event. You must enter the following informa on in the Issue or Redemp on event:

Nature: Amor sa on

Begin date: Date of the first sinking fund instalment

End date: Date of the last sinking fund instalment

Quote

Propor on: Percentage redeemed

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Frequency: Number of frequency units between two instalments

Frequency Unit: Unit used in the frequency

Example 1:

Take an instrument where 40% is redeemed on 15/05/98 and 60% on 15/05/2002. This requires the crea on of two Redemp on events:

Event 1

Nature: Amor sa on

Begin date: 15/05/98

End date: 15/05/98

Quote: 100

Propor on: 40%

Event 2

Nature: Amor sa on

Begin date: 15/05/2002

End date: 15/05/2002

Quote: 100

Propor on: 60%

Example 2:

Take an instrument where 10% is redeemed semi-annually from the 15/05/98 to the 15/05/2000 and 50% on 15/05/2001. This requires the crea on of two
Redemp on events:

Event 1

Nature: Amor sa on

Begin date: 15/05/1998

End date: 15/05/2000

Quote: 100

Propor on: 10%

Frequency: 1

Frequency Unit: Semester

Event 2

Nature: Amor sa on

Begin date: 15/05/2001

End date: 15/05/2001

Quote: 100

Propor on: 50%

Notes:

Redemp on of the remaining part must be an "amor sa on" redemp on (not a "final redemp on").

Redemp on dates must correspond to coupon payment dates.

Capital Reduc on
The capital reduc on set up is very similar to that of a sinking fund redemp on. The only difference is the nature. The data here is for informa on purposes only.
Once a capital reduc on has occurred, it is necessary to set the quota on rule of the bond to "unpaid percentage" and enter the percentage in the instrument
chronological data.

Note that you cannot combine amor sa on, capital reduc on, and "Call/Put" redemp on for the same bond.

Exchanges and Conversions

If the instrument is exchanged for another one (enter the instrument as a Conver ble Bond if this is specified at issue), you must create Exchange event(s). You must
also do this for Euro conversions. The data model allows the input of events that occur over a certain period (between event Begin and End dates). However, the
events are deemed to occur on the Begin date.

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A ribute Descrip on

Begin Date Date from which the event occurs. In the current version, this is the date at
which the event occurs.

Priority Indicates the order in which same day events are to be processed. Several
events can occur on the same day for the same instrument.

Nature Conversion / Exchange

Replacement Should set the flag to Yes.

Flag

Reference Indicates for how many units of the original instrument the event occurs.
Quan ty
Example: 1 unit of bond A gives 1 unit of bond B.

Quan ty of When the exchange involves another instrument (as opposed to just cash), this
New quan ty describes the number of new instruments to be acquired per reference
Instrument quan ty of original instrument.

New When the exchange involves another instrument (as opposed to just cash),
Instrument indicates the name of this instrument.

Physical Should set the flag to Yes.

Delivery Flag

Quote If the exchange involves cash payments, contains the amount of cash per
reference quan ty of the original instrument. A posi ve quote indicates that
the amount is received by the holder of a long posi on, a nega ve one indicates
an amount to be paid.

Currency Indicates the currency of the quote or the currency of the cash se lement
amount described above. If this a ribute is not indicated, it is assumed to be
the currency of the bond.

Rounding Indicates what is rounded.

Level

New Quan ty

New Round
Lot

Rounding Rule For example, Up, Down, Nearest

New The unit on which rounding is done (e.g. 0.01, 0.5, etc.).
Instrument
Min Denom.

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A ribute Descrip on

Odd Lot If rounding occurs, indicates what is done with the quan ty le over. Select
Compensa on from:

0: Lost: the odd quan ty is lost

1: Cash Compensa on New: the odd quan ty of new instrument is cash

compensated

2: Kept: the odd quan ty is kept in the por olio

3: Cash Compensa on Old: the odd quan ty of old instrument is cash

compensated

Corporate Ac ons Overview Table

For Ini al Public Offers (IPOs), the event type should be set as IPO.

Corporate Ac ons Details Table

The following is a list of a ributes that are specific to Ini al Public Offers (IPOs):

A ribute Descrip on

First Dealing Bonds will be available for secondary market trading on this date.
Date

IPO Issue Type The permi ed values are:

Single Bid

BookBuild

When set to Single Bid, only one bid can be submi ed per order. The bid can be
placed only at the Subscrip on Price.

When set to BookBuild, mul ple bids can be placed however, the price must be
within the price band (Minimum Subscrip on Price, Maximum Subscrip on
Price)

IPO Lot Size The minimum number of bonds that can be bid. Bonds can only be bid in
mul ples of the IPO Lot Size.

Minimum Maximum Subscrip on Amount for a book building IPO.

Subscrip on
Amount

Minimum Minimum Subscrip on Price for a book building IPO.

Subscrip on
Price

Maximum Maximum Subscrip on Amount for a book building IPO.

Subscrip on
Amount

Maximum Maximum Subscrip on Price for a book building IPO.

Subscrip on
Price

Subscrip on Subscrip on opens on this date.

Begin Date

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A ribute Descrip on

Subscrip on Subscrip on closes on this date.

End Date

Subscrip on Subscrip ons cannot be submi ed a er this me.

End Time

Subscrip on Subscrip on Price for a Single IPO.

Price

Response New IPO orders are not allowed a er this date.

Deadline Date

Opera ons
Fixed income instruments are bought and sold using the "buy" and “sell” opera ons. The buy opera on is also used when
subscribing a newly issues bond.

Redemp on: Fixed income instruments are redeemed with a sell opera on.

Coupon payments: Coupon payments are made using an "income" opera on.

For more details, refer to the WealthSuite Front Office - Por olio Management - Opera ons, Posi ons, and Fusions Reference Guide.

Business Func ons

The following sec ons describe the business func ons of this instrument:

Valua on

Risk Posi on

Journal

Analy cal Indicators

Valua on
Fixed income bonds are valued according to their valua on rule. Typically, bonds are quoted instruments.

Notes:

Accrued interest of a Fixed Income posi on that has not yet reached its value date is computed up to the value date. If a
Fixed Income instrument is purchased in two opera ons, the opera ons will not merge un l the la er has reached its value
date.

When the applica on parameter FULL_COUPON_FLAG is set to 1, accrued interest on the coupon payment date is equal
to the full coupon value. This can be useful if coupon payment opera ons are imported the night a er the coupon payment.
That way, the value of the posi on remains smooth.

When working with a Valua on rule set as Theore cal, price is calculated from the yield curve entered at the instrument level. It is either a compound formula or a
spot formula, depending on the type of yield curve you defined. Once corresponding rates (or discount factors) have been found, cash flows are discounted (or
mul plied by the corresponding discount factors) for the required date.

Risk Posi on
Typically, the Risk Nature of this kind of instrument is interest. The risk posi on in a Fixed Income instrument is the same as the accoun ng posi on.

Journal
The journal typically shows all expected coupons, redemp ons, and exchanges that occur in the period.

A par cular case is where the redemp on schedule includes Call or Put redemp ons. In this case, only the most probable redemp on is shown in the journal. This is
found by comparing the yield to each redemp on and selec ng the worst call or the best put. For example, the following redemp on possibili es are found:

Call in 2001 with a yield to call of 7.60%

Put in 2003 with a yield to put of 5.20%

Call in 2004 with a yield to call of 5.40%

Final redemp on in 2008 with a yield to maturity of 5.50%

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The 2004 call is selected as the redemp on of the instrument.

The journal func on has been extended to show the interest cash flows (coupons) for the interest calcula on rules defined in the interest rate condi on sub-table.
For all the rules, the coupon periods of the instruments that have a defined interest calcula on rule and whose coupon payment dates fall within the ‘Reference
Date’ (inclusive) and ‘Final Date’ (inclusive) of the journal domain are retrieved.

The expected coupon calcula ons for range accruals, digital and memory interest calcula on rules are:-

Range Accrual

When the current (system) date is within a coupon period, the coupons that accrue post the previous coupon payment ll the current date are shown as cash flows
based on the number of the days the benchmark was inside the defined range ( ll the system date).

Expected Coupons = (Fixed interest rate/n) * (No. of days inside/No. of days in the period) * Q

Where:

Fixed interest rate = Fixed interest rate per annum defined in the ‘Interest Rate Condi on’ sub-table.

n = number of coupon periods in a year.

No. of days in the period = the total number of days in the coupon period.

Q = quan ty of posi on

No. of days inside = the number of days the benchmark values were inside the defined boundaries in the concerned coupon period.

Where:

= the value of the benchmark at date i.

if value is available and not in or if no value is available. A worst case scenario is applied by default for unknown values and for future occurrences. The
minimum and maximum values are defined in the ‘Minimum Interest Rate’ and ‘Maximum Interest Rate’ a ribute of the ‘Interest Rate Condi on’ sub-
table.

if value is available and in . ‘i’ is a date.

SD = the start date of the coupon period for which accrued interest is being calculated.

T = the date on which the valua on is being calculated. If ‘T’ and ‘SD’ are same, then “no. of days inside” should be calculated only once for that date and
not twice.

Note: For coupon period(s) which occur a er the ‘Current Date’ (systems current date), the cashflows projected will be zero.

Digital

IF ( is available and >= Minimum Value)

Expected Coupons = (Fixed interest rate/n) * Q

Else ‘0’ (not available or < Minimum Value).

Where:

= the value of the benchmark on the observa on date of the concerned coupon period. For the concerned coupon period, the observa on date can be
calculated using ‘First benchmark date’ (from 'Interest Rate Condi on' sub-table), payment frequency unit and payment frequencies value from
‘Instrument’ table.

Minimum value = ‘Minimum Interest Rate’ defined in the ‘Interest Rate Condi on’ sub-table.

Fixed interest rate = Fixed interest rate per annum defined in the ‘Interest Rate Condi on’ sub-table.

n = number of coupon periods in a year.

Q = quan ty of posi on

Memory Coupons

The current and prior coupon period(s) are fetched for the retrieved coupon payment dates and for these periods; the coupon amount (Coupont) star ng with the
first coupon period of the instrument is calculated.

Where:

Coupont = Coupon amount for a par cular coupon period.

Q = quan ty of posi on.

t = coupon period number of the instrument.

N = number of coupon periods in a year.

(t-1) = the coupon period number. If ‘Coupont’ is being calculated for second coupon period, then, (t-1) is ‘1’. If ‘Coupont’ is being calculated for first
coupon period, then, (t-1) is ‘0’ etc.

Interest rate =

IF (Share Price is available and >= Coupon Strike Level)

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Interest Rate = Fixed Interest Rate (‘Interest Rate’ a ribute of the ‘Interest Rate Condi on’ sub-table)

Else ‘0’

Where:

Share Price = Share price of the underlying instrument (for 'Single' category) on the observa on date of a par cular coupon period. The observa on date can be
calculated using ‘First benchmark date’ (from 'Interest Rate Condi on' sub-table), payment frequency unit and payment frequencies value from the ‘Instrument’
table.
For the average and worst-of categories, the instrument composi on table is used and the price of the average basket/ worst-of instrument as on the observa on
date is calculated and used for comparison purposes.

Coupon Strike Level = ‘Coupon Strike Level’ from ‘Instrument’ table.

Analy cal Indicators

The computed analy cal indicators typically concern the measure of yield and the sensi vity of the price to movements in the yield. In par cular, the analy cal
indicators include:

Indicator Descrip on

CURRENT Computes the current clean or dirty yield.

YIELD()

YTM() Computes yield to the most probable redemp on, final maturity, next call, best
call, next put, best put, etc.

DURA() Computes the dura on (Macaulay).

MDURA() Computes the modified dura on (Hicks).

CONV() Computes the convexity.

These analy cs handle sinking funds and income and capital gains taxes.

Alterna vely, the keyword AA_DF_BOND calculates Dollar dura on, Dollar convexity, and Value of a Basis Point by using discount factors from a yield curve.

The Dollar dura on is the weighted average of the ming of expected cash flows, weighted by the present value of each flow. The Dollar convexity is the rela ve
curvature of the price- yield curve, represen ng a second order measure of price-yield sensi vity, expressed in cash amount. Combined with dura on, convexity can
be used to approximate the percentage change in price given a percentage change in yield. Dollar convexity expresses in amount the percentage change in price.

The value of a basis point is the change in price (market value) of the instrument given a one basis point change in its yield. It is the first deriva ve of price per unit
face value with respect to yield. The formula for the value of a basis point is -dP/dy.

For more informa on, refer to the WealthSuite Front Office - Por olio Management - Script Language Reference Guide.

Examples
Example 1: Step-up / callable bond

Example 2: Fixed income with “dirty quote”

Example 3: Accrued interest flag and Price Calcula on rule Quote in Unit

Example 4: Fixed income held in unit but quoted in percentage

Example 5: Theore cal valua on

Example 1: Step-up / callable bond

This example is a EURO's 5-year step-up bond, whose coupon increases from 8% to 10% by increments of 0.5%, issued by Floral, an ins tu on rated AAA. The bond is
callable on the third and fourth coupon payment dates. The fi h coupon payment is the maturity date.

In this case, you create five interest rate condi ons events to define the five different coupon rates. The Validity Date is the date from which the Journal report takes
account of the event. This date is valid un l the End Validity Date.

The first event, the 8% coupon is valid from May 1, 1998 to May 1, 1999: the Begin Date is May 1, 1998 and the Validity Date is May 1, 1998.

The second event, the 8.5% coupon is valid the second year: the Begin Date is May 1, 1999 and the Validity Date is also May 1, 1998 (so that when the Journal is
requested on May 20, 1998, it shows both events).

For the third event, the 9% coupon, the Begin Date is May 1, 2000 and the Validity Date is May 1, 1998.

Note that you do not need to enter an End Date as Front Office – PM treats an event as valid un l it finds another event with a subsequent date.
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Finally, the early redemp on possibili es are defined in the issue/redemp on sub-table. The first call redemp on is valid on the third coupon payment anniversary,
May 1, 2001. The Begin Date is May 1, 2001, the Validity Date is May 1, 1998 and the Effec ve expira on date is May 1, 2001: the journal shows this possibility if its
yield is worse than the final redemp on yield.

The yield to maturity is 8.91%, the yield to the second call in 2002 is 8.70% and the yield to the first call in 2001 is 8.47%. The journal selects the first call redemp on
in 2001 as the maturity in the analysis.

Example 2: Fixed income with “dirty quote”

In this example, the way to handle ex-coupon date and payment date with a bond’s “dirty” price is described. It presents the way the instrument should be set
accompanied by some relevant results that the valua on returns.

The scenario has a me gap of 7-10 days, for example, between coupon ex-day en tlement and actual payment day. With these bonds, accrual is embedded in the
bonds' price.

The following important se ngs should be considered in this context:

Instrument main table

Income Event

Iss/Rdm Event
Instrument main table
To handle “dirty” quotes, it is recommended that you use “Quote/100 with AI” as the Price Calcula on rule. The Accrued Interest Flag must be set to Yes to ensure
that the system to compute accrued interests on Fixed Income prices will obtain correct figures when the posi ons of the bonds are created in the por olio.
Income Event
The coupon schedule can either be kept in the main instrument table or in the income event sub-table.
Instrument prices
In the following examples (using the previous two se ngs), you can see that the Quotes include accrued interests but are removed from the prices. Note also in
these images that the bond’s Quote dropped the date following Ex-Coupon Day (i.e., 18/02/2007).

In the following image, on Payment Date, accrued interests are null as Front Office – PM starts compu ng for the following period.

Redemp on event
Finally, we recommend se ng final redemp on in the issue/redemp on event table to handle various redemp on schedules as it is described in sec on
Redemp on.

Valua on results in the Modify Instrument Iss/Rdm Event window

In the following image, with Valua on Date before Ex-Coupon Date (18/02/2007), the Income is represented as an Accrued Interest (with effec ve interest payment
date as of 28/02/2007).

In the next image, with Valua on Date (23/02/2007) between Ex-Coupon Date and Payment Date (28/02/2007), you see that the Coupon has been detached, and is
represented as an Income Opera on (70.00 CHF). Its Value Date is equal to effec ve payment date (28/02/2007) and a nega ve Accrued Interest represents the
present value (Valua on Date) of the Income paid at a future date (Payment Date).

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Example 3: Accrued interest flag and Price Calcula on rule Quote in Unit
If a Fixed Income or a Conver ble Bond has a Price Calcula on rule set to Quote In Unit, the effect on the business func ons is as follows.
Opera ons
The opera on gross amount: Quan ty * price * face value

The opera on net amount: (Quan ty * price * face value) + accrued interest

The opera on accrued interests: Quan ty * face value * interest rate * #days / basis

Accrued interests are calculated only if accrued interest flag = Yes

With # days = current date – last coupon payment date or instrument

Valua on
The accrued interest computed in the valua on and opera on must also take into account the face value. This means that the computa on is performed as follows:

Accrued interests = Quan ty * face value * interest rate * #days / basis

Accrued interests are calculated only if accrued interest flag = Yes

The basis depends on the accrual rule (e.g., 365 if the accrual rule is “Actual/365”)

The Market Value computed by the Valua on is as follows:

Ref Market Value = quan ty * instrument price * face value * exchange rate (between the Domain currency and the
instrument price currency) + accrued interest

Accrued interests are added only if accrued interest flag = Yes

Event Genera on business func on computes Incomes using the following formula:

Quan ty * face value * interest rate

Strategy Reconcilia on must also take the face value into account. This means that the quan ty is computed using the
following formula:

(actual weight – objec ve weight) * por olio reference market value /(face value* price in reference currency)

The following table shows the different behaviours in opera on with the accrued interest flag is used:

Accrued interest flag = Yes Accrued interest flag = No

Quote Dirty quote Dirty quote

Price Clean price Dirty price

Quote / face value - accrued interest Quote / face value

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Accrued interest flag = Yes Accrued interest flag = No

Gross Amount Clean price * face value * quan ty Dirty price * face value *
quan ty

Accrued Quan ty * face value * accrued interest * null

interests #days / basis

Net Amount Gross amount + accrued interest Gross amount

The following table shows the different behaviours in valua on when the accrued interest flag is used:

Accrued interest flag = Yes Accrued interest flag = No

Accrued Quan ty * face value * accrued interest * null

interests #days / basis

Ref (Instrument price * face value * quan ty + Instrument price * face value *
Market accrued interest) * exchange rate quan ty * exchange rate
Value

Example 4: Fixed income held in unit but quoted in percentage

The following example describes a Fixed Income se ng on Spanish bonds that has the characteris cs:

held in unit

quoted in percentage

Financial descrip on:

The way to set this kind of instrument is to define:

Price Calcula on rule is Quote/100

Face value = contract size = 600

Example 5: Theore cal valua on

The following example is a 3-year fixed coupon bond. The reference currency is CHF and the yield curve of the instrument is CHF_YC. The coupon is 5% per annum
and the Accrual rule applied to the accrued interest calcula ons is Actual/365.

The yield curve is composed of the following applicable rates: 1-year rate at 4.25%, 2-year at 5.5%, and 3-year at 6%.

Discoun ng is performed according to the Interest Rate Conven on of the yield curve, in this case Compound, i.e. component rates are treated as compound rates
(and if they are defined as compound rates, they are converted to compounded rates).

The first coupon is discounted at 4.25%: 5% / (1+4.25%)^1 = 4.796%

The present value of the second is: 5% / (1+5.5%)^2 = 4.492%

The present value of the third flow is: 105% / (1+6%)^3 = 88.146%

The sum of these elements represents the net present value of the future flows expected for the bond. The bond's theore cal price is thus 97.43%.

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Op ons
The Op on nature defines instruments that convey the right, but not the obliga on, to either buy or sell a specific quan ty of commodity or financial instrument
(e.g., equity, stock index, currency, bond, futures contract, etc.) at a fixed price at either a fixed future date or at any me during a fixed future period. It, therefore,
covers op ons, warrants, and rights.

Instrument Data
The following sec ons describe which data to enter and where:

Main Instrument Table

Term Event Sub-table

Main Instrument Table

The following is a list of a ributes that have a specific influence on or meaning for instrument nature Op on:

A ribute Descrip on

Reference The currency in which the op on is traded.

Currency For currency op ons, the currency which will be sold (call op on) or bought (put
op on) on the execu on.

Contract The number of op ons which are contained in 1 op on contract.

Size

Begin Date The issue date.

Accrual Rule Used to day counts in analy cs.

Op on Class "Call" or "Put".

Op on Style "American" or "European".

End Date The expiry date of the contract.

Underlying The quan ty of the underlying instrument. The difference between this and the
Quan ty contract size is best illustrated with an example:

One standardised call contract on IBM stock en tles the holder to

purchase 100 stocks. The price of the op on contract is USD 5. The
value of a posi on of 1 contract is USD 500.

One warrant to buy 100 IBM stocks also en tles the holder to purchase
100 stocks. However, if the price of the warrant is USD 20, the value of
a posi on of one warrant is USD 20.

In the former case, the contract size is used to show a quan ty of 1 where the
quan ty should be 100. However, each individual op on gives the right to 1
underlying instrument. In the la er case, the investor really holds only one
warrant; however, the quan ty of underlying ("underlying quan ty") is 100.

Underlying The underlying instruments that are processed are:

Instrument
Stocks

Bonds

Futures

Commodi es

Currency (the currency which will be bought (call op on) or sold (put
op on) at the execu on)

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A ribute Descrip on

Redemp on The strike price.

Quote
For a currency op on, the price of one unit of underlying currency in the
reference currency.

Exercise The currency of the strike price.

Currency

Physical Defines whether the op on entails physical delivery or is cash se led.

Delivery
Flag

Default The model used to compute analy cs or theore cal prices, e.g. "Black and
Model Scholes" or "Binomial". If not specified, the model defined in the applica on
parameters is used.

Default Flag For currency op ons only: Per currency pair, one op on can be flagged as the
“default op on”, and the vola lity of the underlying will be stored in the chrono
sub-table for these op on. All other currency op ons with the same currency pair
will take the vola lity from the default op on.

Yield Curve When theore cal valua on is used, the risk free interest rate is derived from this
yield curve.

Term Event Sub-table

The term event sub-table defines the condi ons of the exercise of an op on. The term event occurrences are used if the characteris cs of the op on change over
me. Such changes can arise from corporate ac ons on the underlying security.

Opera ons
The opening of a long op on posi on is done by a “Buy” opera on.

The opening of a short op on posi on is done by a “Sell” opera on.

There are two ways to exercise a call:

Sell the op on and purchase the underlying at the strike price (this implies that a realised loss is booked on the op on).

Purchase the underlying at the strike price and remove the op on with an adjustment opera on (no realised loss is booked
but the cost price of the underlying now includes the op on premium).

In markets where op ons are mark-to-market, you can perform a margin call opera on. In this case, the op on posi on must be acquired using a Future Open,
Future FIFO, Future WMP, or Future Contract as the Reference nature (refer to the WealthSuite Front Office - Por olio Management - Opera ons, Posi ons, and
Fusions Reference Guide for more informa on).

Business Func ons

The following sec ons describe the business func ons of this instrument:

Valua on

Risk Posi ons

Journal

Analy cal Indicators

Valua on
Op ons are valued according to their Valua on rule. Typically, op ons are quoted instruments.

If the Advanced Analy cs Module (AdAM) licence is available, the script keywords AA_BS_OPT() and AA_CRR_OPT() can be used to calculate the theore cal price of
the op on by means of the Black-Scholes and the Cox, Ross and Rubinstein models. In the theore cal valua on, op ons on commodi es will be treated like op ons
on stocks.

Risk Posi ons

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The calcula on of the op on's risk posi on depends on the nature of the underlying.

Op on on a security or on an index
In the Risk View, the op on posi on is split into a posi on in the underlying instrument, and an offse ng posi on, which is iden fied by the op on’s instrument
code and has either the nature Cash Account or the nature Discount Instrument, depending on the system parameter RISK_OPT_PROCESS_RULE.

The aim of the Risk View is to split the op on posi on into posi ons with a similar risk exposure. For a long call op on posi on, the posi on in the underlying is also
long because the call op on gives its holder the right to buy the underlying, and its price moves in the same direc on as the price of the underlying. Consequently,
for a long put op on posi on, the posi on in the underlying is short. For short op on posi ons, these rules are inversed.

The system parameter RISK_OPT_VAL_RULE determines the way of spli ng the op on into a cash posi on and a posi on in the underlying instrument.

For RISK_OPT_VAL_RULE = 1, it is assumed that the op on posi on is s ll held.

When working with the op on risk flag set to “Full Exposure” in the Domain, the quan ty of the underlying posi on is equal to the number of op ons * contract
size. This posi on is valuated by the current instrument price. The value of the offse ng posi on is determined such that the sum of the market values of the
underlying and the offse ng posi on is equal to the market value of the op on posi on in the accoun ng view.

When working with the op on risk flag set to “Delta Exposure” in the Domain, the quan ty of the underlying posi on is determined as delta * number of op ons *
contract size, and all other values are adapted accordingly.

For RISK_OPT_VAL_RULE = 2, it is assumed that the op on posi on has been executed. The posi on in the underlying with quan ty = number of op ons *
contract size is valuated with the strike price of the op on. A cash posi on is generated as cash amount, which would have been paid or received at the execu on of
the op on (i.e., for buying or selling the underlying instrument at the strike price).

Op on on currency
When working with RISK_OPT_VAL_RULE = 1 and op on risk flag set to “Full Exposure” in the Domain, the op on contract is replaced by a posi on in the
underlying currency (long for long call, short for long put, etc.), whose quan ty is determined as number of op ons * contract size * underlying quan ty, and which
is valuated with quote = 1. An offse ng posi on in the op on's reference currency is created, with quan ty = number of op ons * contract size * underlying
quan ty * strike price, and valuated such that the overall market values remains unchanged between the accoun ng view and the Risk View. With op on risk flag at
“Delta Exposure”, all values for the underlying leg are mul plied by the op on’s delta, and the values for the offse ng leg are adapted accordingly.

For RISK_OPT_VAL_RULE = 2 the op on is assumed to be executed. The Risk View displays a posi on in the underlying currency with quan ty = number of
op ons * contract size * underlying quan ty and quote = strike price of the op on, and a posi on in the reference currency of the op on with same quan ty but
valuated at a price of 1.

Op on on future
In the Risk View, the decomposi on comes down to the underlying of the future, such that there is no longer a deriva ve posi on shown in the Risk View.

The posi on in the underlying is determined from the number of the op ons, the contract size of the op on, and the contract size of the future contract.

Journal
At the expira on date, the system proposes to close the op on's posi ons. If the Physical Delivery Flag is set to Yes, it also proposes the exercise of the op on if the
condi ons are favourable (in the money op on).

CALL PUT

Cash Physical Cash Physical

In the money Sell at S-X Sell at 0 & Sell at X -S Sell at 0 &

Purchase Underlying at X Sell of Underlying at X

Out of the money Sell at 0 Sell at 0 Sell at 0 Sell at 0

Where S = the current price of the underlying and X = the exercise price of the op on.

The option exercise rule applica on parameter indicates whether the op on is sold or adjusted.

Analy cal Indicators

The analy cal indicators found here are mainly concerned with:

theore cal pricing of op ons (OPT_PRICE)

sensi vity of the price to various risk factors (OPT_SENS)

implied vola lity (OPT_IMPVOL)

The models supported are Black and Sholes (Black for Eurodollar futures and Garman-Kohlhagen for currency op ons) and, Binomial and Addesi-Whaley (a closed
form es ma on of American op ons). As a reminder, to compute the analy cs properly you must provide the following data:

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Data Descrip on

Strike Redemp on quote of the op on.

Price

Expira on End date of the op on.

Date

Underlying The price of the underlying instrument.

Price

Risk Free The price of an instrument in the specific currency and with the "default flag" set to
Rate Yes (for more details, see sec on Rate).

Annual This can either be found in the instrument chronological data of the underlying
Price instrument (which can be computed using the ESTVOL() or STAT() keywords). If no
Vola lity stored data is found, the vola lity is computed using a price series. The number
and frequency of readings, as well as the type of instrument prices to be used
("close", "ask") are defined as applica on parameters. Note that intensive on-line
computa on of vola lity is not recommended for performance reasons.

Addi onally, for correct computa on, the holding cost of the underlying must be calculated in some cases. It depends on the nature of the underlying instrument.

Data Descrip on

Stock and The holding cost is the risk free rate.

stock index
op ons

Op ons on The holding cost is 0.

Futures

Bond Three methods are available (see the "Bond holding cost rule" applica on
op ons parameter BOND_HOLD_COST_RULE):

the holding cost is the risk free rate - the yield to maturity

the holding cost is the risk free rate and the underlying price is the price
minus the net present value of the coupon plus accrued interest

the holding cost is 0 and the underlying price is the forward price of the
bond at expira on

Commodity The holding cost is the risk free rate minus the annual storage cost. You must
op ons enter the holding cost in the holding cost a ribute of the underlying instrument
(nature Commodity).

Currency The holding cost is the risk free rate minus the risk free rate of the foreign
op ons currency.

If the Advanced Analy cs Module (AdAM) licence is available, the script keywords AA_BS_OPT() and AA_CRR_OPT() can be used to calculate the sensi vi es
(“Greeks”) such as delta, gamma, vega, and theta.

For more details, refer to the WealthSuite Front Office - Por olio Management - Script Language Reference Guide.

Examples
Stock index op ons

Currency Op ons

Bond Future Op ons

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Stock index op ons

For example, define a call op on on the German Stock Index DAX with expira on date = 15.12.2011 and strike price = 6000 EUR as follows:

A ribute Value

Reference Currency EUR

Contract Size 100

Begin Date 15.09.2011

Op on Class "Call"

Op on Style "European"

End Date 15.12.2011

Underlying Quan ty 1

Underlying Instrument DAX-INDEX

Redemp on Quote 6000

Exercise Currency EUR

Yield Curve EUR_YC

The underlying instrument must be set up as instrument with nature Index. The current price of the index must be maintained in the instrument price table of the
index. If you want to use theore cal valua on, the vola lity of the underlying index must be given in its chrono sub-table. Note that a 20% vola lity must be entered
as 20 and not 0.20.

Currency Op ons
The underlying of the op on is a currency, which can be bought (call op on) or sold (put op on) at the op on’s strike price.

As an example, we define a European call op on on EUR/USD. The op on is created with reference currency USD, underlying EUR. The strike price is 1.05 (i.e. 1 EUR
= 1.05 USD).

A ribute Value

Reference Currency USD

Contract Size 100

Begin Date 15.09.2011

Op on Class "Call"

Op on Style "European"

End Date 15.12.2011

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A ribute Value

Underlying Quan ty 1

Underlying Instrument EUR

Redemp on Quote 1.05

Exercise Currency USD

Yield Curve USD_YC

Bond Future Op ons

An op on on a future gives the right to enter into a future posi on on the execu on of the op on. For example, a long call on a future gives its owner the right to
enter into a long future posi on at the op on’s strike price.

As an example, we define an American put op on on the EUR_BOND_FUTURE (underlying of instrument nature Future) with a strike price of 105:

A ribute Value

Reference Currency EUR

Contract Size 1

Begin Date 15.09.2011

Op on Class "Put"

Op on Style "American"

End Date 15.12.2011

Underlying Quan ty 1

Underlying Instrument EUR_BOND_FUTURE

Redemp on Quote 105

Exercise Currency EUR

Yield Curve EUR_YC

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Cash Accounts
A cash account is an instrument for which accrued interest can be computed, and which has no maturity date. The interest is computed on the daily balance on a
value date basis.

Instrument Data
The following sec ons describe which data to enter and where:

Instrument Table

Interest Rate Condi on

Income Event

Instrument Table

A ribute Descrip on

General Data

Por olio The por olio to which this account belongs.

Account The third party to which this account belongs.

Owner

Parent Indicates the cash account from which the condi ons (or a ributes) are inherited.
Instrument This means you can define a master cash account only once and reference it here.
When interest rate condi ons change, you only need to update the "master
account" data.

Valua on Quote = 1
Rule

Interest rate data

Accrued If set to Yes, Front Office – PM computes accrued interest.

Interest
Flag

Accrual The day count method for interest computa on.

Rule

Payment schedule: The payment schedule depends on:

four dates

payment frequency

"end of month" conven on

Dated Date Date on which accrued interest starts accruing. If not specified, Front Office – PM
uses the begin date of the instrument.

First Indicates when the first interest payment is made. From this date onwards, the
Coupon interest payments are deemed regular. If not specified, Front Office – PM assumes
Date the first coupon is one period from the dated date.

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A ribute Descrip on

Last Date of the last interest payment. If not specified, the a ribute defaults to the end
Coupon date of the instrument.
Date

Payment Indicates the number of "payment frequency units" between two interest
Frequency payments (see below).

Payment Indicates the unitary period between two interest periods. The possible values are:
Frequency
Unit Month

Quarter

Semester

Year

For example, if interest is paid every six months, the se ngs must be done as
follows: payment frequency = 1, payment frequency unit = "semester".

End Of End of month conven on is not currently applied to Front Office – PM processes.
Month
Conven on When end of month conven on support is added, the End Of Month Conven on
field can be used to indicate whether interest payments that occur at the end of
months are repeated on the same date or at the end of month. For example, if we
have a semi-annual interest payment schedule paying on the 28th of February
2005, the payment schedule is:

Last: 28/02/05 - 31/08/05 - 29/02/06

Same: 28/02/05 - 28/08/05 - 28/02/06

Last 360: 28/02/05 - 30/08/05 - 28/02/06

Default A default cash account is automa cally generated when you create a new currency.
Flag There can only be one default cash account per currency. Front Office – PM uses
this default for all por olios and opera ons. In par cular, it uses the default to
define:

underlying instruments of deriva ve contracts

default por olio payment instruc ons

currency risk in the risk engine

For example, for Forex contracts or currency op ons, the underlying instruments'
nature is Cash Account.

Interest Rate Condi on

Interest Rate: interest rate paid on posi ve balances

Debit Rate: interest rate charged on nega ve balances (if not specified, the interest rate specified above is used for both posi ve and nega ve balances).

Income Event
If the coupon schedule is too complicated to be maintained in the instrument table, the income events can be defined in this table in the same way as for bonds.

Por olio Payment Instruc ons

For each por olio, you can define payment instruc ons that associate a specific cash account to a currency and type of opera on. For example, you might want to
credit all CAD generated from an income opera on to the USD account 12345. For more informa on on this func on, refer to the WealthSuite Front Office - Por olio
Management - Script Language Reference Guide.

Addi onally, you can debit or credit a cash account in a different por olio by using a "cash por olio".

Opera ons
Account transfers: Performed using a buy or sell opera on if the accounts are in the same por olio. If the accounts are in
different por olios, por olio transfer is used.

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Forex spot trades: All spot trades of type cash can be processed as buy or sell opera ons performed on a cash account
instrument. For example, in a buy transac on, the cash account in the "instrument" a ribute of the opera on will be
credited, and the cash account in the "account" a ribute of the opera on will be debited. For forward Forex trades, use the
instrument nature Forward (see sec on Forward Contracts).

Payment of interest: Use an income opera on.

Business Func ons

Journal
The journal typically shows all income paid or received according to the defined payment schedule. The first payment date takes into account all past opera ons and
then assumes that the current balance does not change. For subsequent periods, it is assumed that the current balance does not change.

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Money Market
The Money Market category describes "interest at maturity" instruments. It does not cover instruments with scheduled coupons. It does, however, cover deposits
that have renewal clauses.

You can use Money Market instruments to process "repurchase agreements" (also called “repos”) if you lock the repo instrument.

Characteris cs
Generic instruments

A Money Market instrument can be either "generic" or "non-generic". When working with generic instruments, you only need the currency held in the
instrument; all other data (begin date, end date, interest rate) is provided in the opera on. For non-generic instruments, the issue date, expira on date, rate of
interest, and currency are maintained in the instrument table or in its interest rate condi on sub-table.

You must create instruments that are traded on the secondary market (with accrued interest) as non-generic instruments.

Instruments that are not traded (such as OTCs) and are issued on demand can be created as generic instruments.

Loans

You can enter a loan as a short money market posi on. This can be useful for repos (see below).

Instrument Data

A ribute Descrip on

Accrual Day count method used (generally ACT/365 or ACT/360).

Rule

No ce Number of days to redemp on for call money.

Days

Generic Indicates if the instrument is generic or not.

flag

Valua on The standard Valua on rule for this instrument nature will be “Price = 1”, meaning
Rule that the market value of a money market posi on is the quan ty (no onal) +
accrued interest.

Alterna vely, you can set the value to Theore cal to get a pricing by discoun ng
from a yield curve.

Accrued Typically, you set this flag to Yes unless you require theore cal pricing because the
Interest theore cal price is the discounted value of the nominal and the final coupon
Flag payment.

Interest Specifies whether to use the simple MM method or the simple Compound method
Rate to compute the accrued interests.
Conven on

Yield Curve Yield curve to be used for the discoun ng when the Valua on rule is set to
Theore cal.

Interest The interest rate that applies.

Rate

Begin Date The date on which interest accrues (non-generic instruments).

End Date The maturity date (non-generic instruments).

For more complex interest rate structures (floa ng or variable rates and stepped rates), the interest rate condi on sub-table must be used.

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A ribute Descrip on

Begin Date Date from which the rate applies.

End Date Last date on which the rate applies (if not specified, the rate applies un l the
begin date of another fixed condi on).

Interest Defines if the interest rate condi on is fixed or floa ng.

Calcula on
Rule

Interest Rate Fixed interest rate for the period.

Benchmark Rate instrument from which the interest rate is derived (e.g., 3-month Libor).

Mul plica ve Factor by which the benchmark rate is mul plied.

Margin

Addi ve Spread added to the benchmark rate.

Margin

Minimum Floor applicable to a floa ng rate.

Interest Rate

Maximum Cap applicable to a floa ng rate.

Interest Rate

The interest rate applied is decided in the following order:

1. Interest rate of the opening opera on

2. Interest rate of the instrument

3. Interest rate condi on sub-table

Opera on
The following sec ons describe how to enter transac ons in this instrument:

Acquiring a money market posi on

Redeeming a money market posi on

Paying interest

Roll over

Repos

Acquiring a money market posi on

Use a buy or sell (for loans) opera on to acquire a money market posi on. If the instrument is non-generic, accrued interest is paid. If the instrument is generic, no
accrued interest is paid (as the accrual date is the value date). If you intend to re-use the instrument for different contracts, the reference nature of the opera on
must be set to "Open" to prevent different contracts from merging.

Redeeming a money market posi on

Use a sell or buy (for loans) opera on to redeem a money market posi on. Interest can either be paid as accrued interest on expiry or as a separate income
opera on (see below). If the reference nature of the ini al posi on is "Open", the reference nature of the redemp on opera on must be "Close".

Paying interest
To pay interest, use an income opera on. You must set the Fusion rule "AI Reset" to ensure that the accrued interest counter is reset to 0. If the reference nature of
the money market posi on is Open, you must specify Open when you pay the income and reference the opening opera on. This ensures that the income is
associated with the correct contract.

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Roll over
With generic instruments, you can increase or decrease the quan ty without receiving or paying accrued interest. To do that, use the Fusion rule “amendment” in
the buy or sell opera on. In an amendment buy opera on, the amount of accrued interest computed from the opening of the deposit to the value date of the
amendment is stored in the new posi on (in the "accrued amount"). When a valua on is required, the accrued interest is computed from the value date of the new
posi on and added to this stored amount.

Repos
A repurchase agreement (also called repos) is processed as the sale of a money market instrument or a discount instrument with the simultaneous locking of the
repo posi on.

The locking of the repo posi on can be entered with the buy opera on of the money market or discount instrument by using the “locking” a ributes.

A ribute Descrip on

Locking Nature Repo locking, Repo unlocking.

Lock Instrument The instrument that is being repo.

Lock Quan ty The quan ty of instrument being repo.

Addi onally, the following opera on fields are used for informa on purposes. Front Office – PM can use their default values to compute the quan ty of money
market or discount instrument to purchase or sell:

A ribute Descrip on

Lock Dirty Price The price including accrued interest at which the instrument is repo.

Lock Clean Price The price excluding accrued interest at which the instrument is repo.

Lock Price Margin The "haircut" or margin applied to the price.

When you repo an instrument, you create a posi on with the specified locking nature (e.g. Repo Locking). The posi on is used in the market valua on but is stored
as a separate posi on. In markets where it is unusual to see repo posi ons (that is, where they are considered as real sales), you can filter them out of the valua on.
(For more informa on about filters, refer to the WealthSuite Front Office - Por olio Management - Format and UDS Reference Guide).

Business Func ons

The following sec ons describe the business func ons of this instrument:

Valua on

Risk posi ons

Journal and Event Genera on

Analy cal indicators

Valua on
As men oned above, the computa on of accrued interest takes into account the fact that the quan ty in the posi on has poten ally changed over me without any
payment of income.

For theore cal valua on, the appropriate interpolated rate from the yield curve specified at the instrument level is used. The interpolated rate is compared to the
rate at which the deposit was made (in the opening opera on or at the instrument level) and the difference is discounted as of the date of valua on.

The market value represents the nominal amount, plus or minus the discounted difference applied to the nominal.

Risk posi ons

In the Risk View, money market instruments are treated as bonds. Their risk type is "interest rate risk".

Journal and Event Genera on

Interest and redemp on opera ons appear on the expira on date. For "call money", they appear at the Ini al Date plus the number of days in the No ce Days field
of the instrument.

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The expira on of the repo unlocks the repo instrument.

Analy cal indicators

The indicators are the same as for Fixed Income: simple yield, dura on, and modified dura on.

Example: French Average Rate Money Markets

Defini on
Front Office – PM handles the specific case of French Money Market opera ons based on Average overnight rates.

To set up a French Average Rate opera on, create a generic or non-generic Money Market instrument with the sub-nature Average Rate. This sub-nature does the
following:

Computes accrued interest, taking into account the +1 day accruals based on the previous day's rate.

Lets you define a rate as an index. This index can then be used to retrieve daily rates to calculate accruals.

Lets you specify an addi ve margin in the opera on for generic instruments based on the index described above.
Characteris cs
Generic instruments

When you create a generic Money Market instrument, you must enter the Value and Expira on Dates at the Opera on level. Since the interest rate changes over
the life of the contract, you do not need to specify it in the opera on screen. Nevertheless, when you enter a rate in the opera on screen, it is treated as an
addi ve margin that overrides the instrument’s addi ve margin.

There are two ways to define the daily changing interest rate:

As a series of daily fixed Interest Rate Condi ons: the rate specified is used regardless of addi ve margins.

As a floa ng rate instrument at Money Market Instrument level: the floa ng rate instrument is a rate whose daily
quotes (rates) are retrieved. The margin specified in the opera on (as a rate) or directly in the Money Market
instrument is added to the retrieved rates and is used to compute accruals.

The first solu on lets you create one generic money market for different contracts with the same maturi es since the rates are the same for all the contracts.

The second solu on lets you define one generic instrument for all contracts and maturi es since the spreads (i.e., the rates), relate to every single contract.

Non-generic

When you create a non-generic Money Market instrument, you must define the Begin and End dates in the instrument.

There are two ways to define the daily changing interest rate:

As a series of daily fixed Interest Rate Condi ons: the rate specified is used regardless of addi ve margins.

As a floa ng rate instrument at Money Market Instrument level: the margin specified in the Money Market instrument
is added to the daily quotes (rates) of the floa ng rate instrument and is used to compute accruals.

As the instrument is non-generic, you must create an instrument for each contract in both these solu ons.
Instrument table

A ribute Descrip on

General Data

Generic Flag If the flag is set to Yes, some data (Value Date, Expira on Date and Addi ve
Margin) is retrieved from the opera on created. If the flag is set to No, you
must define all the data in the instrument table.

Accrual Rule Day count method used. Generally ACT/365 or ACT/360.

Price Prices are usually quoted at par (i.e., value is Quote).

Calcula on
Rule

Valua on Rule Since these instruments are typically equal to par, set the Valua on rule to
Quote=1.

Floa ng Rate The rate instrument whose retrieved quotes are used as daily changing rates to
Instrument compute accruals.

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A ribute Descrip on

Begin Date For non-generic instruments, this is the date on which interest starts to accrue.

End Date For non-generic instruments, this is the date of expira on of the instrument.

Interest Rate Rate must not be specified here (see below).

Sub-nature Average Rate should be the sub-nature. This way, Front Office – PM will handle
all the French Average Rate par culari es (see Defini on above).

Addi ve The margin specified is added to the daily retrieved rates (the quotes of the
Margin floa ng rate instrument). With generic instruments, this is overwri en with the
rate specified in the opera on.

Interest rate data: The interest rate applied is determined according to the following se ngs in
the order given (note that all the processing depends on the Average Rate sub-nature)

Floa ng Rate If you specify a Floa ng Rate instrument, Front Office – PM uses its retrieved
Instrument daily quotes with the Addi ve Margin added, if there is one.

Interest Rate Fixed interest rate condi ons that change daily should be entered here.
Condi on
table

Begin Date Date from which the rate applies.

End Date Last date on which the rate applies (if not specified, the rate applies un l the
Begin Date of another fixed condi on).

Interest Must be defined as a fixed interest rate condi on. Floa ng Rate Instruments
Calcula on are only handled at instrument level.
Rule

Interest Rate The fixed interest rate for the period.

Generic instrument

Value Date of Date on which interest starts accruing.

the opera on

Expira on The maturity date, if any.

Date of the
opening
opera on

Rate (in the Margin added to the floa ng rate instrument values, overwri ng the margin
opera on) specified in the Money Market instrument.

Non-generic instrument

Begin Date Date on which interest starts accruing.

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A ribute Descrip on

End Date The maturity date.

Addi ve Margin added to the floa ng rate instrument values.

Margin

Valua on
The easiest, cheapest and most efficient way to handle French Average Rate Money Markets is to define a Generic Money Market with the overnight reference rate
as the floa ng rate instrument and Average Rate as the sub-nature.

Accrued interest in the opening opera on would be 0 but a valua on on the same date returns one day's accrued interest es mated from the previous day's O/N
rate. On the other hand, the only difference in valua on on the penul mate and last day is not the number of days of accrual but the rate used.

On the penul mate day, the overall accrued amount includes one day calculated from the previous day's O/N rate. On the last day, the overall amount (which is
nearly the same) is computed using the real, available O/N rates for the period.

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Forward Contracts
A forward contract is an agreement between two par es to exchange one currency for another at a fixed future date. The rate at which the exchange is to be made,
the delivery date and the amounts involved are fixed at the me of the agreement.

In contrast, a spot transac on is entered as the purchase or sale of a quan ty of a cash account against another in a different currency.

Characteris cs
You can define a forward as a generic or as a non-generic instrument.

In a non-generic instrument, the start date and the delivery date (value date) of the contract are defined in the instrument defini on. This means that this
instrument can be only used once (i.e., for a specific contract on a single por olio).

When working with generic instruments, the start date and the value date are set at the opera on level. This means that you do not need to create an instrument
for each contract but rather one instrument per currency pair.

Instrument Data

A ribute Descrip on

Reference The currency sold (for a long contract).

Currency

Underlying A Cash Account instrument with a reference currency set to the currency bought
Instrument (for a long contract).

To decide which is the reference currency and which is the underlying currency,
look at how the exchange rate is quoted. It should be quoted as 1 unit of
underlying expressed in the reference currency.

Example:

A contract to buy USD against CHF is a CHF instrument with USD as the underlying.
The exchange rate is quoted in the number of CHF for 1 USD.

Price The value is Quote.

Calcula on
Rule

Valua on The permi ed values are:

Rule
Quoted: the unitary value of the contract is entered as a price.

Theore cal: the price of the contract is computed (see below).

Accrual Indicates the day count method used in valua on.

Rule

Generic Indicates whether the dates involved in the contract are registered at the
Flag instrument level or the opera on level.

Begin Date The date at which the contract was entered (for non-generic instruments only).

End Date The value date of the contract (for non-generic instruments only).

Yield Curve Yield curve for the reference currency. Only used when theore cal valua on with
the discoun ng method is used. If no yield curve is set, the default yield curve of
the reference currency will be used. It is not possible to set a yield curve for the
underlying currency in the forward instrument. For this currency, the default yield
curve will always be used.

Opera ons

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The following sec ons describe how to enter transac ons in this instrument:

Opening a Forward Contract

Closing a Forward Contract

Margin calls

Other opera ons

Opening a Forward Contract

Data Descrip on

Opera on Buy or Sell.

Nature
A buy opera on means that the underlying currency is bought and the reference
currency is sold.

A sell opera on means that the underlying currency is sold and the reference
currency is bought.

Quan ty The quan ty of the underlying currency.

Quote The contractual fixed rate of the contract. The price is computed using the price
calcula on rule.

Value Date Se lement date for a generic contract (see above).

Account Account in the reference currency of the forward instrument.

Reference "Forward Open".

Nature

Closing a Forward Contract

Data Descrip on

Opera on Inverse to the opera on nature of the opening opera on.

Nature

Quan ty The quan ty of the underlying currency.

Quote The contractual fixed rate of the contract.

Value Se lement date for a generic contract (see above).

Date

Reference "Forward Close"

Nature

Reference Code of the opening transac on.

Code

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Data Descrip on

Account Account can be:

An account in the underlying instrument currency. The contract is then

se led in the currencies defined at the contractual level ("Delivery"
closing).

An account in the reference currency of the forward instrument. The

effect is then a "cash se lement" of the contract where only the P&L is
generated ("Se lement" closing)

You can define these as default values at the opera on level. The Journal and Event
Genera on func ons will use these values.

Margin calls
In markets where forwards are market to market, margin call opera ons can be performed (for more informa on, refer to the WealthSuite Front Office - Por olio
Management - Opera ons, Posi ons, and Fusions Reference Guide).

Other opera ons

The opening of a forward contract involves the simultaneous debit of a cash account. In the valua on process described below, you can see that the value of the
contract is the difference between the outright value of the contract and the cash posi on. The outright value and the cash posi on are linked by the same opening
opera on code. For this reason, you cannot invest, withdraw, or transfer forward contracts.

Business Func ons

The following sec ons describe the business func ons of this instrument:

Valua on

Risk Posi ons

Journal

Event Genera on

Valua on
The display of the valua on of forward contracts depends on the system parameter FWD_ACC_FLAG (Forward Accoun ng Flag).The permi ed values are:

FWD_ACC_FLAG Effect

0 The forward posi on is displayed on two legs; the contract leg and an
offse ng cash posi on ("cash leg").

The contract is valued as quan ty mul plied by price.

1 The contract is displayed as one posi on.

The amount calculated is discounted from the difference between the

contract price and the market price, and from the expira on date to the
calcula on date.

In both cases, the overall market value is the same.

The quote used to value a forward contract depends on the Valua on rule of the instrument. You can have either:

Valua on rule set to Quoted

Valua on rule set to Theore cal

Valua on rule set to Quoted

An instrument price is associated with the contract. This Valua on rule only makes sense for non-generic instruments where the Begin Date and the Value Date are
defined at the instrument level.

The daily quotes are stored in the instrument price table.

The market value of the forward contract is calculated as

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quantity * (current price - cost price)

Valua on rule set to Theore cal

For theore cal valua on, two different methods are available. The choice of the method depends on the system parameter FORWARD_VAL_RULE.

FORWARD_VAL_RULE Effect

Rule 1 Ini al difference between the cost price and the spot cost price is added
on a pro-rata temporis basis to the current quote of the underlying
instrument. For more informa on, see sec on below.

Rule 2 Theore cal price is calculated by using the discoun ng factors from
yield curves. This method requires the Advanced Analy cs licence. For
more informa on, see sec on below.

Rule 1: Theore cal by a pro-rata distribu on of the ini al forward premium or discount over the life me of the contract
This method is applied for instruments with Valua on rule set to Theore cal when the system parameter FORWARD_VAL_RULE is set to 1.

Quote = Current spot rate + [(cost price - spot cost price) * d/D]

Where:

Current spot rate = Spot currency rate that is valid on the valua on date.

Cost price = Price from the open opera on.

Spot cost price = Spot currency rate that was valid at the date of the opening opera on.

d = Number of outstanding days before the expira on date.

D = Total number of days of the contract.

Rule 2: Theore cal by calcula ng discoun ng factors from yield curves
This method is applied when the system parameter FORWARD_VAL_RULE is set to 2.

The (theore cal) forward price is computed as

Where:

= Spot rate between the traded currency

and the underlying currency on the valua on date.

= Discount factor for currency A for the me between the valua on date and
the value date (maturity date) of the forward.

Example:

We buy USD 1 million versus USD at a forward rate of 1.0397 (i.e., selling EUR 1,039,700) with opera on date = 15/01/2000 and value date = 03/04/2000.

The valua on for the forward as of 31/01/2000 should be calculated and the spot currency rate at this date is 0.9772.

This example is based on the calcula on of interpolated rates and not the calcula on on interpolated discount factors.

EUR and USD yield curve se ng:

Interpola on Conven on = Linear Extrapola on (or default)

Interpola on Rule = Spot

Interest Rate Conven on = Compound (or default)

EUR and USD rate se ng:

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Interest Rate conven on = Simple MM

The steps are:

Step Descrip on Calcula on

1 Calculate On 31/01/2000, the EUR yield curve is composed of a one-month simple MM rate at
the 3.1530% and a three-month simple MM rate at 3.3820%. These rates are used to calculate
discount the interest rate for the me period between the valua on date (31/01/2000) and the value
factor for date of the forward (03/04/2000).
EUR
The interpolated rate is calculated by using compound rates. For this, the simple MM rates
are converted into compound rates.

One month compound rate calcula on:

DF = 1 / (1 + 3.153 / 100*(29/02/2000 - 31/01/2000)/360) = 0.997466518

Compound rate 1M = ((DF^(-1 / ((29/02/2000 - 31/01/2000) / 360*12)) - 1)*100*12) =

3.153137962

Three months compound rate calcula on:

DF = 1 / (1 + 3.382 / 100*(30/04/2000 - 31/01/2000)/360) = 0.991615888

Compound rate 3M = ((DF^(-1 / ((30/04/2000 - 31/01/2000) / 360*12)) - 1)*100*12) =

3.372512918

From these two rates, the interpolated rate for EUR is calculated:

Interpolated rate = Compound rate 1M + ((Compound rate 3M – Compound rate 1M) /

((30/04/2000-29/02/2000)/360)) * ((03/04/2000-29/02/2000) / 360) = 3.2754125%.

The discount factor for EUR is

DF = (1 + (interpolated rate / (100*12)))^ - (((03/04/2000-31/01/2000) / 360)*12)

= 0.99429219

2 Calculate On 31/01/2000, the USD yield curve is composed of a one-month simple MM rate at
the 5.7580% and a three-month simple MM rate at 5.9630%.
discount
factor for One month compound rate calcula on:
USD
DF = 1/ (1 + 5.758 / 100*(29/02/2000 - 31/01/2000) / 360) = 0.995383026

Compound rate 1M = ((DF^ (-1 / ((29/02/2000 - 31/01/2000) / 360*12)) - 1)*100*12)=

5.758459794

Three months compound rate calcula on:

DF = 1/ (1 + 5.963 / 100*(30/04/2000 - 31/01/2000) / 360) = 0.985311469

Compound rate 3M = ((DF^ (-1 / ((30/04/2000 - 31/01/2000) / 360*12)) - 1)*100*12) =

5.933611850

From these two rates, the interpolated rate for USD is calculated:

Interpolated rate = Compound rate 1M + ((Compound rate 3M – Compound rate 1M) /

((30/04/2000-29/02/2000) / 360)) * ((03/04/2000-29/02/2000) / 360) = 5.85608553%

The discount factor for USD is

DF = (1 + (interpolated rate / (100*12)))^ - (((03/04/2000 - 31/01/2000) / 360)*12)

= 0.98982885

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Step Descrip on Calcula on

3 Calculate Forward rate =

the
theore cal
forward
rate
= 0.9772 * 0.98982885 / 0.99429219

= 0.972813392

4 Calculate The calcula on of the market value of the forward posi on is easier to understand when the
the market forward is displayed in two legs (i.e., FORWARD_ACC_FLAG = 0 or working in Risk View).
value
The valua on (in EUR) of the forward leg (i.e., USD-leg) is calculated as

MV = quan ty * forward rate *

= quan ty * *

= 1,000,000 * 0.972813392 * 0.99429219

The value of the forward rate is shown as Price in the Valua on screen.

The valua on (in EUR) of the cash leg (i.e., EUR-leg) is calculated as

MV = - quan ty * contracted rate *

= 1,000,000 * 1.0397 * 0.99429219

Where:

Quan ty = Quan ty in opening opera on

Contracted rate = Price in opening opera on

Therefore, quan ty * contracted rate corresponds to the sold amount in EUR.

is shown as Price in the Valua on screen.

The global market value of the forward posi on (as valuated in one leg) is the sum of the
market values of both legs:

MV = quan ty * forward rate * - quan ty * contracted rate *

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Step Descrip on Calcula on

= quan ty * (forward rate – contracted rate) *

= 1,000,000 * (0.972813392 – 1.0397) * 0.99429219

= - 66 504.83 EUR

This formula shows that the market value of the forward posi on is equal to the unrealised
profit and loss of the posi on due to the difference between the forward rate (as observed
on the market) and the contracted rate (which was nego ated in the opening opera on of
the contract). However, this unrealised profit and loss would only be realised at the maturity
(value date) of the contract. Thus, it has to be discounted by the discount factor in the EUR
DFEUR from the value date to the valua on date.

The term is also known as net present value (NPV) of the forward contract and is calculated
as:

NPV = (forward rate – contracted rate) *

= ( * ) - (

* contracted rate)

Risk Posi ons

The risk posi ons of a forward contract are:

posi on in the forward contract

posi on in the cash account

The system parameter RISK_FWD_RULE determines the natures of the two posi ons. It does not, however, impact the calcula on of the quan es, market values,
etc. The overall sum of the values in the valua on currency is iden cal between the accoun ng view and the Risk View.

For the posi on in the forward contract, the quan ty is the quan ty in the underlying currency of the contract. This is
converted to the forward's reference currency by the current forward rate, and then converted to the valua on currency by
the current exchange rate.

The posi on in the cash account corresponds to the "cash leg" as if working with FWD_ACC_FLAG = 0. This posi on is in
the reference currency of the contract.

When working with the theore cal valua on and FORWARD_VAL_RULE = 2, both posi ons are discounted with the
discount factors in the respec ve currency.

When working with the system parameter RISK_CASH_LEG_RULE_MASK = 1, the system will generate the cash account
posi on in an ar ficial instrument. In this instrument, the a ribute risk_orig_instr_id references the forward instrument,
and the a ribute parent_instr_id references the original cash account. By means of these a ributes, all a ributes of the
original instrument become available for lists and classifica ons. This allows, for example, the display of the cash leg
together with the forward leg under "Forwards" in Check Strategy and Performance business func ons.

Journal
The contract is closed in the Journal func on. The accounts used are those set by the default value and therefore, allow "Delivery" or "Se lement" closing.

Event Genera on
The Event Genera on func on is able to – manually or via batch processing - generate Opera on and Accoun ng dates prior to the Expira on Date with a number of
Business Days defined at the Se lement Day Cycle level in the instrument table.

To allow the genera on of Opera on and Accoun ng dates prior to n Business Days from the Expira on Date, you must set the Se lement Day Cycle in the forward
descrip on

The Se lement Day Cycle field must be an integer and should be <<Blank>>, set, and modified. By default, the field is set to <<Blank>>.

Set to <<Blank>> means that:

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Se lement Day Cycle =0

Opera on Date = Accoun ng Date = Expira on Date.

A default value should also be implemented in the Accoun ng and Opera on dates:

IF(instr_id = NULL, SYSDATE(), IF(instr_id.settle_day_n, ADD_BUSINESSDAYS(account_d,

instr_id.settle_day_n,),account_d))

If the Se lement Day Cycle field is set - with a value different than 0 or <<Blank>> - and the default value scripted, then the Opera on and Accoun ng dates will be
shi ed to the prior Business Day available for both the reference currency and the underlying currency.

For example, if Se lement Day Cycle field is set to -3, the dates of the sell opera on that closes the forward is calculated as:

Accoun ng date = 27/12/2006

Opera on date = Value date = Expira on date = 01/01/2007

In this example, only the Accoun ng date is scripted to take into account the Se lement Day Cycle; the same rule should be applied to the Opera on date.

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Future Contracts
A future is a contract between two par es to buy or sell a specified quan ty of a financial instrument at a determined date in the future, where the price is already
fixed when the deal is concluded.

Characteris cs
The data related to a contract’s quote and se lement characteris cs is stored in the instrument or term contract sub-tables. However, the contractual price and the
se lement dates are stored in the opening opera on.

Instrument Data
The following a ributes specifically relate to Futures contracts:

A ribute Descrip on

Price The permi ed values are:

Calcula on
Rule Quote

Quote / 100

Eurodollar futures: the price of the contract is computed as 100 minus

the quote adjusted for the life of the underlying rate.

Australian futures*: the quote of the contract is computed as 100 minus

the yield to maturity of a 10-year 12% no onal bond.

Australian futures (flexible)**:the quote of the contract is computed as

100 minus the yield to maturity based on:

Maturity: Price calcula on maturity and Price calcula on maturity unit

Rate: Price calcula on rate

Tick Size The minimum price movement.

Contract Indicates the number of underlying instruments covered with one contract. No ce
Size that this is used mainly when inpu ng and displaying the quan ty of futures, as
the quan ty saved in the database is always equal to the quan ty of the posi on
mul plied by the contract size.

Contract Used for bond futures and general informa on purposes.

nature
Example: LIFFE Bund contract, CBOT 5-year contract.

Underlying Stock, Bond (Fixed income), Deliverable, Index, Cash account, and Commodity.
instrument

Physical A checked box indicates that you want to deliver the underlying; if the check box is
delivery cleared, the contract is se led with cash compensa on.

* Australian futures price calcula on:

** Australian futures (flexible) price calcula on:

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For more complex cases such as delivery condi ons for bond futures, the term (contract) event sub-table is used. The relevant a ributes are:

A ribute Descrip on

Cheapest-to- Select the appropriate instrument.

Deliver

Conversion The factor by which the futures se lement price is mul plied to calculate the
Factor invoice amount.

Conversion Used in BTAN se lements to adjust invoice amounts for convexity.

Ra o

Opera ons
The following sec ons describe how to enter transac ons in this instrument:

Buy/Sell opera ons

Adjustment

Margin calls

Other opera ons

Buy/Sell opera ons

Futures contracts are purchased and sold using Buy and Sell opera ons. Mandatory fields are:

A ribute Descrip on

Quote Contractual se lement quote (Gross Amount panel on the screen).

Value Date of the opera on is the se lement date of the contract (Dates panel).

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A ribute Descrip on

Reference Future Open: Contracts do not merge unless a corresponding "Future

nature Close" transac on is entered. This closing opera on must have a
reference opera on code set to that of the opening opera on.

Future FIFO: Contracts with the same sign do not merge; offse ng
contracts merge according to the "first in first out" method.

Future WMP: Contracts are merging into a weighted-mean price

accoun ng method.

Future Contract: Contracts do not merge unless a corresponding "Future

Contract" transac on is entered with the same reference code. Opening
opera on and all other opera ons on a contract must have the same
reference code; this reference code can or not be an opera on code.

Account 2 If fees and taxes exist in an opera on, you must detach them from the Account 1
field and use the Account 2 or Account 3 field. If a cash por olio is used in the
opera on, use the Account 3 field for fees and taxes instead of the Account 2 field.

The detachment of fees and taxes from the Account 1 field for the Return and
Performance func ons calcula ons is mandatory.

When closing an opera on, if there is a value in the Account 2 field, the fusion
process transfers the P&L cash flow from "Account 1" to "Account 2". (For more
informa on, refer to sec on “Cash Management” in the WealthSuite Front Office -
Por olio Management - Opera ons, Posi ons, and Fusions Reference Guide).

Account 3 With or without a cash por olio, the Account 3 field can be used to detach fees and
taxes from "Account 1". It is, therefore, recommended that you always use the
Account 3 field to detach fees and taxes from "Account 1".

Adjustment
When Futures contracts are used to hedge, you can impact the hedged posi on of the cost of the hedge using an adjustment opera on (refer to the WealthSuite
Front Office - Por olio Management - Opera ons, Posi ons, and Fusions Reference Guide for more informa on).

Margin calls
Margin calls are processed using Adjustment Opera ons. There are two ways to enter the opera on:

Indicate the new cost price of the futures contract:

Fusion process calculates the margin amount, and feeds P&L.

Indicate the new cost price and the margin amount (in amount 2). Two different behaviours are possible depending on the
system parameter FUT_PL_ACCT2_MARGIN_CALL:

If the opera on date is less than FUT_PL_ACCT2_MARGIN_CALL, the old behaviour is applied (i.e., any difference is
added to P&L).

If the opera on date is greater (or equal) than FUT_PL_ACCT2_MARGIN_CALL, then margin amount of amount 2 feeds
P&L.

If a difference exists between the given amount and the calculated P&L by the fusion process, this difference is added to the future resul ng posi on
(instrument and cash legs) to con nue to keep a balanced posi on. The next closing opera ons include this difference in the P&L (cash flows on account 2
and balance P&L posi ons).

For more informa on, refer to the WealthSuite Front Office - Por olio Management - Opera ons, Posi ons, and Fusions Reference Guide.

Other opera ons

Note that the purchase of a Futures contract involves the simultaneous debit of a cash account. In the valua on process described below, we see that the value of
the contract is the difference between the outright value of the contract and this cash posi on, both being linked by the same opening opera on code.

For this reason, you cannot invest, withdraw, or transfer Futures contracts.

Business Func ons

The following sec ons describe the business func ons of this instrument:

Valua on

Theore cal valua on

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Risk posi ons

Journal

Valua on
The valua on of Futures contracts depends on the FUT_ACC_FLAG system parameter.

If the flag is set to "0", the posi on is valued as price mes quan ty and an offse ng cash posi on is valued.

If the flag is set to "1", the value of the posi on is the difference between the current price and the contractual price.

When using Cash Account 2 (*) on closing posi on, with value date greater than accoun ng and opera on dates:

If the flags FUT_ACC_FLAG and FUSION_CASH_VALUE_DATE_FLAG are set to "1" (fusion process use value date for cash posi ons) and the system parameter
FUSION_DATE_RULE is set to "1" or "2" (fusion process use opera on date or accoun ng date for non-cash posi ons), then:

when we make a valua on on the accoun ng date, the valua on func on show us the following cash posi ons:

P&L on cash account 1

Withdraw P&L on cash account 1

P&L on cash account 2

when we make a valua on on the value date, the valua on func on show us the following cash posi on:

P&L on cash account 2

(*) Using Cash Account 2 on the closing posi on, for Future instruments, leads to an automa c transfer of P&L from cash account 1 to cash account 2.

Example:

Close posi on on 20/06/2008 with value date on 23/06/2008.

Before the closing posi on:

On the opera on date (of the closing posi on):

On the value date (of closing posi on):

Theore cal valua on

Cost of Carry model (keyword AA_CC_FUT)

For stock and index futures, the theore cal (fair) futures price based on the price of the underlying (whether theore cal or through its own price sub-table), is
determined according to the following formula:

where:

SPs is the spot price of the underlying,

r is the risk-free rate,

t is me un l expira on in years

y is the eventual dividend yield.

Discount factor model (keyword AA_DF_FUT)

The theore cal futures price of a bond future is computed according to a non-arbitrage principle. The proceeds from selling the futures (i.e., future’s price mes CTD
price factor plus accrued interest at delivery) should be equal to the overall cost of buying the bond today (paying the bond clean price plus accrued interest on the
purchase date) and financing it un l the future’s delivery date; otherwise, risk-less gain opportuni es would exist. The formula is:

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where:

FP is the futures price

CF is the conversion factor

AID is accrued interest at delivery date

BPS is the bond spot price

AIS is accrued interest at purchase date

r is the risk-free rate

t is me to delivery.

AA selects the cheapest-to-deliver either according to market prices or the theore cal prices of the bonds that composes the basket. In each case, AA computes the
net present value, dura on, convexity, and basis point value of the cheapest-to-deliver selected. Computa ons are based on the keyword AA_DF_FUT in which the
last parameter can be set to True for market prices or False for theore cal prices.

Risk posi ons

The risk posi ons of a Futures contract depend on the RISK_FUT_RULE system parameter.

For rules 1 -4, the future contract is either valuated at its full value (i.e., price mes quan ty) or replaced by a posi on in the underlying. In both cases, an offse ng
cash posi on is shown. Two specific cases must be noted: Eurodollar futures and bond futures.

Eurodollar futures: These futures show a risk posi on in the underlying instrument, which is a "Rate". The rate instrument is
then considered as a Money Market instrument.

Bond futures: A bond futures contract is replaced by its cheapest to deliver.

For rule 5, the future posi on is decomposed into a posi on in the underlying, a cash leg (equivalent to the cash leg as if working with FUT_ACC_FLAG = 0 in the
accoun ng view), and a me value leg, which represents the difference between the market value of the future posi on (as if working with FUT_ACC_FLAG = 0) and
the posi on in the underlying.

Example for RISK_FUT_RULE= 2

Consider a Bond Futures Contracts FC_RXZ6 with expiry date 11-December-2006.

FC_RXZ6 contract contains an Underlying Bond (i.e., Cheapest-To-Deliver - CTD) GERMANY GOVT 3.25% Maturity Date 04-
July-2015.

Contract Size is 100,000 per contract.

Conversion Factor of CTD Bond is 0.819739 and the Close Price of CTD Bond as of 01-Dec-2006 equals as EUR 97.324.

In a por olio, there is a long Bond Futures Contract (FC_RXZ6) on 01-Dec-2006 with the following characteris cs:

Quote (Cost Price used in Buy Opera on) of EUR 118.25 (Front Office – PM converts quote-to-price EUR 1.1825).

Quan ty of 10 FC_RXZ6 contracts.

Quote (Close Price of FC_RXZ6 as of 01-Dec-2006) = EUR 118.73

Gross Amount (of the long Bond Futures posi on) = Quan ty * Contract Size * Price = EUR 1,182,500.00

Risk View valua on in Front Office – PM decomposes the Futures contracts into:

The underlying instrument.

The Offset Cash posi ons of the underlying.

The Futures posi on’s gross amount (the one that is displayed when the FUT_ACC_FLAG is set to 0).
Computa on for underlying instruments
Quan ty of the Underlying Bond = (Quan ty of Futures contract * Contract Size) / (Conversion Factor of CTD Bond specified in the instrument’s chrono table).

In our example:

Quan ty of the Underlying Bond = (10 * 100,000) / 0.819739 = 1,219,900.4805 = 1,219,900.48 (round up to 2 decimals).

Accrued Interest on the Underlying Bond = (Quan ty of Futures contract * Contract Size * Interest Rate * Numerator Basis) / (100 * Denominator Basis) = EUR
16,189.10.

Market Value of the Underlying Bond = (Quan ty of Underlying Bond * Market Price of the Underlying Bond) + Accrued Interest of Underlying Bond = (1,219,900.48
* 0.97324) + 16,189.10 = EUR 1,203,445.04.
Computa on for Offset Cash on underlying instruments
Quan ty of the Offset Cash = (Cost Price of Futures contract * Conversion Factor + Unitary Accrued Interest of Underlying Bond un l Maturity Date) * (Quan ty of
the Bond Futures Contract * Contract Size).

Quan ty of the Offset Cash = (1.1825 * 0.819739 + 0.01417361250) * (10 * 100,000) = 983,514.98.

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Market Value of the Offset Cash = Market Value of Bond Futures Contract in Accoun ng View – Market Value of the Underlying Instrument in Risk View = + 4,800 –
1,203,445.04 = - 1,198,645.04.
Computa on for Future posi on’s gross amount
In the Risk View Valua on, the Future posi on’s Gross Amount is displayed as it is done in the Accoun ng View when the FUT_ACC_FLAG system parameter is set
to 0.

This cash posi on takes the following a ributes:

As this cash posi on does not correspond to a risk component of the Future’s posi on, the Risk Nature (risk_nat_e) is
equal to 0.

As the Future Accoun ng flag is set to 1, this cash posi on is not considered as accounted; so the accoun ng flag (acct_f)
is equal to 0.

This kind of posi on could be filtered as well.

Example based on Format
The previous example could be shown as:

Example for RISK_FUT_RULE = 5

Consider a future contract on a bond with contract size 50. The por olio holds a long posi on of 1000 contract, which has been opened at 102%. On the valua on
date, the future's market price has dropped to 101%, therefore the market value of the future posi on is 50*1000 * (101% - 102%) = -500 EUR. The valua on in the
Accoun ng View with FWD_ACC_FLAG = 0 (valua on on 2 legs) would show the "future leg" with a market value of 50*1000*101% = 50500 EUR and the offse ng
cash leg with a market value of 50*1000*102% = 51000 EUR.

The Underlying Bond has a market price of 103% and a unitary interest of 0.0352778. In the Risk View valua on, the long future posi on is replaced by a long
posi on in the underlying bond (quan ty = 50,000 EUR nominal, market value = 50,000 * 103% + 50,000 * 0.0352778 = 53,263.89 EUR.

The " me value leg" will be generated to take on the difference between the market value of the future posi on and the market value of the risk posi on in the
Underlying Bond.

Journal
Futures contracts are closed out in accordance with the FUT_JRNL_RULE system parameter. This parameter indicates if futures expira ons are displayed and, if so,
whether this occurs the following day (in effect simula ng a margin call) or on se lement. The system presents a buy opera on at the date of expira on.

Examples
Currency futures

Stock index futures

Bond futures

Currency futures
Let us take a December 1998 future contract on the JPY. The contract represents 12.5 million yen, the quota on is in USD per JPY, and the expira on date is 15-12-
2008.

A ribute Value

Code JYZ8

Name

Denomina on

Reference USD
Currency

Market IMM

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A ribute Value

Ac ve Yes

Category Future

Price Quote / 100

Calcula on
Rule On 20th May, 2008, the December contract se led at 0.7407; in fact, it is
0.007407 (1 yen is 0.007407 dollar).

Valua on Rule Quoted

Nego ability Yes

Odd Lot 1
Quan ty

Contract Size 12,500,000

End Date 15-12-2008

Underlying JPY

Physical Yes

Stock index futures

Consider a March 2009 S&P 500 futures contract. One point represents USD 250. The Contract Size is 250, the nominal Value of the contract is 250 mes the futures
price. The contract is cash se led against the value of the cash index if one s ll has a posi on on the last trade date.

In the main instrument table, the a ributes must be set as follows:

A ribute Value

Code SPH9

Name

Reference Currency USD

Ac ve Yes

Category Futures

Price Calcula on Rule Quote

Valua on Rule Quoted

Nego ability Yes

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A ribute Value

Contract Size 250

Risk Nature Equity

End Date 15-03-2009

Underlying S&P 500 (cash index)

Physical No

Bond futures
Consider a Bond futures contract FC_RXZ6 with expiry date 11-Dec-2006.

The FC_RXZ6 contract contains an Underlying Bond (i.e. Cheapest-To-Deliver) GERMANY GOVT 3.25% Maturity Date 04-Jul-2015.

The Contract Size is 100,000 per contract.

The Conversion Factor of CTD Bond is 0.819739 and the Close Price of Cheapest-to-Deliver Bond as of 01-Dec-2006 is EUR 97.324.

In the main instrument table, the a ributes must be set as follows:

A ribute Value

Code FC_RXZ6, FC_RXZ6

Name EuroBund11Dec06

Denomina on

Reference Currency EUR

Category Future

Price Calcula on Rule Quote / 100

Valua on Rule Quoted

Contract Size 100,000

Risk Nature Interest

Begin Date 09/03/2006

End Date 11/12/2006

Underlying DE0001135283 (GERMANY GOVT 3.25% 04 Jul 15)

Physical Yes

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Index
An Index is any average or representa ve indicator that is used to summarise the level of an ac vity or the value of a market.

An Index is therefore considered as a quoted instrument or a composite instrument that is computed from the prices of the component instruments.

Instrument Data
The most important a ributes of the Index are the following:

A ribute Descrip on

Valua on The choices are:

Rule
Quoted: The price of the index is found in the instrument price table

Composite: The index is composite and the price is computed using the
component instruments

Risk Nature Set to ‘Hybrid’ if the components are to be displayed in a Risk View.

Index Return Describes whether the index is a capital index or a total return index, and if so,
Type whether it includes net or gross dividends (for documenta on purposes only).

Composite Indicates how the value of a composite index is computed (e.g., Sum, Highest,
Calcula on Lowest, Arithme c Mean, etc.).
Rule

Index Divisor Amount by which an index computed by average is divided (for documenta on
purposes only).

Index Base Defines the value of the index at Index Base Date (for documenta on purposes
Value only).

Index Base Used when the index is a ra o between the current value of the components and
Date the value at a specific date (for documenta on purposes only).

Index Time Indicates whether the index is computed at a specific date or whether it is an
Rule average over me (for documenta on purposes only).

Index Forex For mul -currency indexes indicates if amounts in foreign currencies are
Flag converted (Yes) or simply added (No) (for documenta on purposes only).

Business Func ons

The following sec ons describe the business func ons of this instrument:

Analy cs Against the Index

Underlying Instruments

Benchmarks

Analy cs Against the Index

The REGR() keyword computes regression analysis between two me series. The output of this func on is alpha, beta, correla on coefficient, covariance, etc. For
more informa on, refer to the WealthSuite Front Office - Por olio Management - Script Language Reference Guide.

Underlying Instruments
In this case, the Index is used as an underlying instrument for deriva ve contracts. Note that in the case of basket op ons, you can create an Index as a composite
instrument that defines the basket and is used as the underlying. For example, you can enter an op on to buy two UBS and enter five CS stocks as an op on on an
Index, where the Index is composed of the instruments men oned above.

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Benchmarks
Indices are frequently used for the comparison of the performance of a por olio or a part of it. You can use an Index directly as benchmark in the Performance
Analysis func on, or define it as benchmark object for a market segment in a strategy. For more informa on, refer to the WealthSuite Front Office - Por olio
Management - Performance Analysis Reference Guide.

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Rate
A rate is an interest rate, or any other indicator such as infla on rates or vola lity points.

Instrument Data
The main instrument data are the following:

A ribute Descrip on

Reference The currency of the rate.

Currency

Default Flag Defines the risk free rate of the currency. Only one default rate may be defined per
currency.

Yield Curve Specifies that if the rate is the benchmark of a floa ng rate instrument, then the
curve on which future cash flows must be computed. Used in Floa ng Rate Notes
(FRN) or swap floa ng leg computa ons.

Accrual The day count conven on to use.

Rule

Sub-Nature Type of interest rate defined. The permi ed values are:

MM Rate: Simple money market rate (e.g. LIBOR or EURIBOR rates)

Bill Discount: Discount rate based index (as in South African Discounted
Bank Bill FRA's, or Italian CCT's)

Bill Yield: means that the rate is the yield of a bank bill (as in Australian
90 day bank bill futures)

Par Yield: the index is the rate of an underlying instrument (par yield of
bond or swap) as used in constant maturity swaps.

Vola lity Point: used in vola lity curve defini on

Interest Specifies the conven on used for the spot rates, which are stored in the price
Rate table, and implicitly, how they are interpolated into the yield curve.
Conven on
Simple MM: Standard for short term rates; the discount factor is
expressed as: 1/(1+r*t)

Compound: Standard for long term rates; here the discount factor is
expressed as: (1+r/qb)^(-t*qb)

Con nuous: Used for a con nuous compounded yield; the discount
factor is expressed as: e^(-r*t)

Where “r” is the rate, “t” is the frac on of the year and “qb” is the quo ng base
(i.e., number of payments made during the year).

Rate Used with rate frequency unit to indicate the period for which the rate applies
Frequency (e.g., 1 month, 3 months, 5 years).

Rate The length of one unit of rate frequency.

Frequency
Unit

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A ribute Descrip on

Payment Used with the Payment Frequency Unit to define the theore cal payment
Frequency frequency of the rate. When you enter the zero coupon yield rates, it is important
to specify that rates over one year are compounded annually. When the sub-type
is set to Par Yield, the Payment Frequency is used to indicate the frequency of
payoffs if the rate applies to a security with payoffs. Typically, this is used for rates
that underlie the floa ng rate indexes (e.g. CMT and CMS swaps) where the
underlying is a par yield rate of a 5-year Treasury.

Payment The length of one unit of payment frequency.

Frequency
Unit

Log Used for spread op ons to indicate whether the rate differen al can be modelled
Distribu on as a lognormal distribu on or a normal distribu on.
Flag
No means a normal distributed spread.

Yes means a lognormal distributed spread so that the Black-Scholes

pricing formula can be used.

Fixing Rule The number unit for the fixing rule.

Number

Fixing Rule The expression of the frequency (usually “Business Day”) for the fixing rule. The
Unit combina on of these two arguments (Fixing Rule Number and Unit) generates a
fixing rule, which determines the date on which a rate is deemed valid. In other
words, it is the number of days before the coupon date; at this date, the rate that
fixes the next coupon is retrieved.

Fixing The calendar related to the rate to which the fixing rule is applied.
Calendar
Example: FRN based on a 3-month EURIBOR rate, star ng on March 15th 2002,
fixed on day 2 (payment conven on: modified following).

Flow Number Rese ng Date Payment Date Fixing Date

1 15/03/02 (Fri) 17/06/02 (Mon) 13/03/02 (Wed)

2 15/06/02 (Sat) 16/09/02 (Mon) 13/06/02 (Thurs)

3 15/09/02 (Sun) 16/12/02 (Mon) 12/09/02 (Thurs)

4 15/12/02 (Sun) 17/03/03 (Mon) 12/12/02 (Thurs)

Business Func ons

The Rate nature is used in the following cases:

Risk-free rate for op on pricing and analy cs. You must define a default rate for each currency.

Floa ng rate instruments or swap floa ng legs: The rate defines the benchmark rate.

Yield curves and Vola lity curves: Defines the individual points of the curve.

Example
The USD 6-month Libor must be defined as follows:

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A ribute Value

Code Lib6m

Name

Nature Rate

Reference Currency USD

Category Other

Default Flag No (only one can be chosen)

Price Calcula on Rule Quote / 100

Valua on Rule Quoted

Yield Curve Reference to a USD yield curve

Risk Nature Interest

Accrual Rule Actual/360

Rate Frequency 1

Rate Frequency Unit Semester

Sub-Nature MM rate

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Swaps
Swaps are private agreements to exchange cash flows in the future according to pre-arranged condi ons.

In a plain Vanilla interest rate swap, party B agrees to pay party A cash flows equal to interest at a predetermined fixed rate on a no onal principal for a number of
years. At the same me, party A agrees to pay party B cash flows equal to interest at a floa ng rate on the same no onal principal for the same period of me. The
currencies of the two sets of interest cash flows are the same.

A currency interest rate swap involves exchanging principal and fixed-rate payments on a loan in one currency for principal and fixed-rate interest payments on an
approximately equivalent loan in another currency.

However, there is no limit to the number of different type of swaps that can be invented. These include swaps with specific non Libor floa ng reference rates (e.g.,
TAM or CMT swaps), swaps that entail the exchange of payments from two different floa ng reference rates (basis swaps), swaps with more than two legs, and
swaps where one leg depends on an equity index or a commodity price.

In view of the diversity of possible swap structures, you can define swaps in Front Office – PM in a few ways. The most complete way is to define the swap as a
composite instrument and associate component legs (in most cases, bonds) with it. However, as this way can be cumbersome for "standard" swaps, you can enter
the component legs as one instrument.

A "standard swap" is constrained by the following:

Only two legs

Regular payment schedule

Constant principal

You can insert swaps with broken periods directly into the swap itself, using the interest condi on sub-table (see sec on Swaps for more informa on).

By adding a fixing rule to the rate defini on, you can easily use generic swaps based on *IBOR rates fixed, for example, on day 2.

Note that the terminology "received/paid" applies to a purchased swap.

Instrument Data
The following sec ons describe which data to enter and where:

Standard Swaps

Broken Period Swaps

Non-standard Swaps

EONIA Rate Swaps

Standard Swaps
The instrument must be defined as follows:

A ribute Descrip on

General informa on

Generic If the swap is generic, the paid fixed leg rate and the Begin Date of the swap are
Flag specified at opera on level (Quote and Value date fields). If the swap is non-
generic, the paid fixed rate and the Begin Date are specified in the instrument
(Paid Interest Rate and Begin Date fields).

Valua on For value Composite or Theore cal (the effect is the same), Front Office – PM will
Rule compute the net present value (NPV) and current replacement swap rate.

The value Quoted must be used if the prices are coming from an external source.

Risk Nature Set to “Hybrid” if the instrument is divided into separate legs for risk analysis.

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A ribute Descrip on

Sub-Nature Available op ons are:

Fixed/Fixed Std Swap

Fixed/Floa ng Std Swap

Float/Float Std Swap

This enters all data in the swap instrument itself (i.e., not as a composite
instrument).

Tenor Number of units in the life of the swap (see below).

Frequency

Tenor Number of units in the life of the swap (e.g., 5 years).

Frequency
Unit

Begin Date Star ng date of the swap, if the instrument is not a generic instrument.

Principal Indicates whether the principal is no onal or is actually exchanged, and if so, when
Exchange the exchange(s) occurs (ini al and / or final dates).
Rule

Interest Specifies whether to use the simple MM method or the simple Compound method
Rate to compute the accrued interests on Fix legs only (see sec on Fixed Income). No
Conven on accrued interest is computed on floa ng legs.

Received leg

Reference Received leg currency.

Currency

Floa ng If the received leg is a floa ng leg, this is the benchmark for which the floa ng
Rate payments are computed. This instrument is a "rate". The curve on which this rate
Instrument is found is the associated yield curve specified at the rate level. Typically, this
benchmark yield curve is the same as the curve used to discount the payments.
However, in some swaps (e.g., CMTs or TEC 10 swaps), the curves are different.

Yield Curve Yield curve used to discount the received leg cash flows.

Accrual Day count method used for the received leg.

Rule

Payment Number of "Payment Frequency Units" between two cash flows (see below).
Frequency

Payment Unitary period between two cash flows.

Frequency
Unit If flows are exchanged every six months, enter the following: Payment Frequency =
1, Payment Frequency Unit = "Semester".

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A ribute Descrip on

End of End of month conven on is not currently applied to Front Office – PM processes.
Month
Conven on When end of month conven on support is added, the End of Month Conven on
field can be used to indicate whether cash flows that occur at the end of the
month are repeated on the same date or at the end of month. For example, if we
have a semi-annual coupon that pays on the 28th of February 1995, the payment
schedule would be:

last: 28/02/95 - 31/08/95 - 29/02/96

same: 28/02/95 - 28/08/95 - 28/02/96

last 360: 28/02/95 - 30/08/95 - 28/02/96

Addi ve Spread applied to the floa ng rate.

Margin

Interest Fixed rate if the received leg is fixed.

Rate

Calendar The calendar used to determine the received leg cash flow schedule. If not
specified, the calendar of the reference currency of the swap is used.

Paid leg

Swap Paid Paid leg currency.

Leg
Currency

Paid If the paid leg is a floa ng leg, the Paid Floa ng Rate Instrument field is the
Floa ng benchmark for which the floa ng payments are computed. This instrument is a
Rate "rate". The curve on which this rate is found is the associated yield curve specified
Instrument at the rate level. Typically, this benchmark yield curve is the same as the curve
used to discount the payments. However, in some swaps (e.g., CMTs or TEC 10
swaps), the curves are different.

Swap Paid The yield curve used to discount the paid leg cash flows.
Leg Yield
Curve

Paid Leg Day count method used for the paid leg.
Accrual
Basis

Paid Number of "payment frequency units" between two cash flows (see below).
Payment
Frequency

Payment Unitary period between two cash flows.

Frequency
Unit If flows are exchanged every six months, enter the following: Payment Frequency =
1, Payment Frequency Unit = "Semester".

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A ribute Descrip on

Paid Leg Indicates whether cash flows that regularly occur at the end of the month are
End of repeated on the same date or at the end of the month. For example if we take a
Month semi-annual coupon paying on the 28th of February 1995, the payment schedule
Conv. is:

last: 28/02/95 - 31/08/95 - 28/02/96

same: 28/02/95 - 28/08/95 - 28/02/96

last 360: 28/02/95 - 30/08/95 - 28/02/96

Paid Fixed rate to be paid if the instrument is not a generic instrument.

Interest
Rate

Paid Calendar used to determine the paid leg cash flow schedule (if not specified, the
Calendar calendar of the reference currency of the swap is used). Can be different for a
currency swap Calendar.

Broken Period Swaps

The instrument must be defined as follows:

A ribute Descrip on

General informa on

Generic Must be set to non-generic. The Begin Date is mandatory, whereas the paid rate is
Flag not (unlike standard swaps).

Valua on For value Composite or Theore cal (the effect is the same), Front Office – PM will
Rule compute the net present value (NPV) and current replacement swap rate.

The value Quoted must be used if the prices are coming from an external source.

Risk Nature Set to “Hybrid” if the swap is divided into separate legs for risk analysis.

Sub-Nature Indicates the one that suits your instrument defini on. For a basic swap, select
from:

Fixed/Float Std Swap

Float/Float Std Swap

Tenor Number of units in the life of the swap (see below).

Frequency

Tenor Number of units in the life of the swap (e.g., 5 years). Select from:
Frequency
Unit Month

Quarter

Semester

Year

Note that for swaps defined in the Interest Condi on sub-table, you can ignore the
system message warning you that a tenor frequency is mandatory.

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A ribute Descrip on

Principal Indicates whether the principal is no onal or is actually exchanged. In fact, this
Exchange a ribute indicates if the principal is exchanged at the ini al and / or final dates
Rule (Instrument: principal rule). In our case, the rule is usually No Exchange.

Business The method used to shi a flow when it falls on a weekend or a holiday.
Day
Conven on

Leg Data

For broken period swaps, the leg data is defined in both the instrument and the Interest
Condi on sub-table.

Received leg

At instrument level (mandatory fields).

Reference Received leg currency.

Currency

Yield Curve Yield curve used to discount the received leg cash flows.

Accrual Day count method used for the received leg.

Rule

Payment Number of Payment Frequency Units between two cash flows (see below).
Frequency

Payment Unitary period between two cash flows. Select from:

Frequency
Unit Month

Quarter

Semester

Year

If flows are exchanged every six months, enter the following: Payment Frequency =
1, Payment Frequency Unit = Semester. Note that even though you do not need to
enter a floa ng instrument or a fixed rate, the frequency is required.

End of End of month conven on is not currently applied to Front Office – PM processes.
Month
Conven on When end of month conven on support is added, the End of Month Conven on
field can be used to indicate whether cash flows that occur at the end of the
month are repeated on the same date or at the end of the month. For example, if
you have a semi-annual coupon that pays on the 28th of February 1995, the
payment schedule would be:

last: 28/02/95 - 31/08/95 - 29/02/96

same: 28/02/95 - 28/08/95 - 28/02/96

last 360: 28/02/95 - 30/08/95 - 28/02/96

Calendar Calendar used to define the received leg cash flow schedule. If not specified, the
calendar of the reference currency of the swap is used.

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A ribute Descrip on

Paid leg

at instrument level (mandatory fields)

Swap Paid Indicates the paid leg currency.

Leg
Currency

Swap Paid Yield curve used to discount the paid leg cash flows.
Leg Yield
Curve

Paid Leg Day count method used for the paid leg.
Accrual
Basis

Paid Number of Payment Frequency Units between two cash flows (see below).
Payment
Frequency

Payment Unitary period between two cash flows.

Frequency
Unit If flows are exchanged every six months, enter the following: Payment Frequency =
1, Payment Frequency Unit = Semester. Note that even though you do not need to
enter a floa ng instrument or a fixed rate, the frequency is required.

Paid Leg Indicates whether cash flows that regularly occur at the end of the month are
End of repeated on the same date or at the end of the month. For example if we take a
Month semi-annual coupon paid on the 28th of February 1995, the payment schedule is:
Conv.
last: 28/02/95 - 31/08/95 - 28/02/96

same: 28/02/95 - 28/08/95 - 28/02/96

last 360: 28/02/95 - 30/08/95 - 28/02/96

Paid Calendar used to determine the paid leg cash flow schedule (if not specified, the
Calendar calendar of the reference currency of the swap is used). Can be different for
currency swap Calendar.

In a broken period swap, the first and/or the last period have a (usually) shorter period than others do. You need to enter this special period as a fixed condi on in
the interest rate condi on table.

A ribute Descrip on

Begin Date Date from which the interest rate condi on applies.

Interest Specifies if the interest rate condi on is fixed or floa ng; use this rule for broken
Calcula on periods as well even though the leg, itself, is floa ng.
Rule

Validity Date from which the interest rate condi on is valid.

Date

Interest Fixed rate of the condi on. Can also be used to define the interpolated rate at
Rate which the broken period is se led.

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A ribute Descrip on

Nature Paid Interest or Received Interest. Use the Nature field to dis nguish the two legs
of the swap. A typical broken period swap would need at least one Paid (or
Received) Interest AND two Received (or Paid Interest) condi ons. See below for
more details of the restric ons applied to the use of this Interest Rate Condi on
nature.

End Date The end date of the Interest Condi on. It is very important to set it correctly;
otherwise, condi ons may overlap and produce erroneous results.

Benchmark For Floa ng Interest Calcula on Rule, this is the floa ng rate.

Interest condi on sub-tables should only be used to define atypical swaps, especially broken period swaps. Consequently, you can only create a restricted number of
Interest Rate Condi on combina ons. The valid combina ons of Interest Rate Condi ons are as follows:

Suitable for broken period swaps, with the broken period at the beginning or the end of
Case the swap (i.e. before or a er the floa ng condi on). The buyer of the swap receives the
1: broken, floa ng leg and pays the fixed leg. See sec on Broken Period Swaps for an
example.

Case Same as Case 1, except that the buyer of the swap pays the broken, floa ng leg and
2: receives the fixed leg.

Case Suitable for broken period swaps, with the broken period at the beginning and at the end
3: of the swap. The buyer of the swap receives the broken, floa ng leg and pays the fixed
leg.

Case Same as Case 2, except that, in this case, the buyer of the swap pays the broken, floa ng
4: leg and receives the fixed leg.

Case Suitable for broken period basis swaps, in which each leg is broken either at the
5: beginning or at the end of the swap.

Case Suitable for broken period basis swaps, in which each leg is broken both at the beginning
6: and at the end of the swap.

One of these condi ons must be met; otherwise, the processing fails (for both the Valua on and Journal func ons). Currently, step-up swaps cannot be
implemented using Interest Condi ons.

Non-standard Swaps
The instrument must be defined as follows:

A ribute Descrip on

General informa on

Principal Indicates whether the principal is no onal or is exchanged. In fact, this a ribute
Exchange indicates if the principal is exchanged at the ini al and/or final dates (Instrument:
Rule principal rule).

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A ribute Descrip on

Risk Set to “Hybrid” if the swap is divided into separate legs for risk analysis.
Nature

Valua on For value Composite or Theore cal (the effect is the same), Front Office – PM will
Rule compute the net present value (NPV) and current replacement swap rate.

The value Quoted must be used if the prices are coming from an external source.

Sub The choices are:

Nature
Fixed/Fixed Std Swap

Fixed/Floa ng Std Swap

Float/Float Std Swap

cannot be selected as this would mean that all informa on is entered into the swap
instrument itself (i.e., not as a composite instrument).

Leg Data

Once the swap instrument is set up, you can then enter as many legs as necessary in whatever
currency you want. Typically, the legs for which analy cs are currently provided are bonds. You
can enter all the characteris cs of the bond. These include floa ng rate, stepped coupons, super
and inverse floaters, bonds with amor sa on, early call, or put features, etc.

Valua on The choices are:

Rule
Quoted: Front Office – PM looks up the price in the instrument table.

Theore cal: Front Office – PM computes the theore cal price using the
appropriate yield curve.

The instrument composi on table links the legs to the instrument.

Data Descrip on

Instrument Code of the leg instrument

Quan ty The quan ty of "leg" per unit of nominal. This can be a nega ve amount or can
reflect the fact that the leg is expressed in a different currency.

This field is mandatory.

Rank Bear in mind that, in the Risk View, the instrument with the highest rank is given a
price that makes the sum of the value of risk posi ons equal to the value of the
"accoun ng" posi on if the la er is "quoted". However, if the swap is theore cally
priced, the rank should have no impact.

This field is mandatory.

It is also possible to use this composi on data to create broken period swaps. You just need to define an irregular payment floa ng rate note and a Fixed Income with
the first coupon date shorter than the payment frequency. Then assign a nega ve quan ty to the paid leg and a posi ve quan ty to the received leg.

Note that the dates in the instrument composi on table relate to the overall composi on of the swap. For a forward star ng swap, use the Begin and End Dates of
the swap leg to define this situa on and NOT the dates in the instrument composi on table. This also applies to a swap where one of the legs changes during its life
to the extent that it can be considered as a different leg for a determined period.

EONIA Rate Swaps

The instrument must be defined as follows:

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Data Descrip on

Received leg

Reference Received leg currency.

Currency

Floa ng Rate If the received leg is a floa ng leg, this is the benchmark for which the floa ng
Instrument payments are computed. This instrument is a "rate". The curve on which this
rate is found is the associated yield curve specified at the rate level. In the case
of a received EONIA rate, this instrument is the EONIA rate.

Yield Curve Yield curve used to discount the received leg cash flows.

Accrual Rule Day count method used for the received leg.

Payment Number of "Payment Frequency Units" between two cash flows (see below)
Frequency

Payment Unitary period between two cash flows.

Frequency
Unit If flows are exchanged every six months, enter the following: Payment
Frequency = 1, Payment Frequency Unit = Semester. Note that even though you
do not need to enter a floa ng instrument or a fixed rate, the frequency is
required.

End of Month End of month conven on is not currently applied to Front Office – PM
Conven on processes.

When end of month conven on support is added, the End of Month Conven on
field can be used to indicate whether cash flows that regularly occur at the end
of the month are repeated on the same date or at the end of the month. For
example if we take a semi-annual coupon paid on the 28th of February 1995,
the payment schedule is:

last: 28/02/95 - 31/08/95 - 28/02/96

same: 28/02/95 - 28/08/95 - 28/02/96

last 360: 28/02/95 - 30/08/95 - 28/02/96

Interest Rate If the received leg is fixed, the fixed rate.

Calendar Calendar used to determine the received leg cash flow schedule. If not specified,
the calendar of the reference currency of the swap is used.

Compounding Method that is used to compute the post-determined rate.

method

Compounding Frequency of rates.

frequency

Compounding Unitary period between two rates.

frequency
unit

Paid leg

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Data Descrip on

Swap Paid Paid leg currency.

Leg Currency

Paid Floa ng If the paid leg is a floa ng leg, the Paid Floa ng Rate Instrument field is the
Rate benchmark for which the floa ng payments are computed. This instrument is a
Instrument "rate". The curve on which this rate is found is the associated yield curve
specified at the rate level. Typically, this benchmark yield curve is the same as
the curve used to discount the payments. However, in some swaps (e.g., CMTs
or TEC 10 swaps), the curves are different.

Swap Paid Yield curve used to discount the paid leg cash flows.
Leg Yield
Curve

Paid Leg Day count method used for the paid leg.
Accrual Basis

Paid Payment Number of "Payment Frequency Units" between two cash flows (see below).
Frequency

Payment Unitary period between two cash flows.

Frequency
Unit If flows are exchanged every six months, enter the following: Payment
Frequency = 1, Payment Frequency Unit = Semester. Note that even though you
do not need to enter a floa ng instrument or a fixed rate, the frequency is
required.

Paid Leg End Indicates whether cash flows that regularly occur at the end of the month are
of Month repeated on the same date or at the end of the month. For example if we take a
Conv. semi-annual coupon paid on the 28th of February 1995, the payment schedule
is:

last: 28/02/95 - 31/08/95 - 28/02/96

same: 28/02/95 - 28/08/95 - 28/02/96

last 360: 28/02/95 - 30/08/95 - 28/02/96

Paid Interest Fixed rate to be paid if the instrument is not a generic instrument.
Rate

Paid Calendar Calendar used to determine the paid leg cash flow schedule (if not specified, the
calendar of the reference currency of the swap is used). Can be different for a
currency swap Calendar.

Paid Method that is used to compute the post-determined rate.

Compounding
method

Paid Frequency of rates.

Compounding
frequency

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Data Descrip on

Paid Unitary period between two rates. Select from:

Compounding
frequency Month
unit
Quarter

Semester

Year

The table below shows the different se ngs to enter to define the different methods to compute the post-determined flow rates of an EONIA rate leg:

(Paid) (Paid)
(Paid)
Com- Com- Payment Payment Floa ng
Com-pounding
pounding pounding Freq. Freq. Unit Rate
Conven on
Freq. Freq. Unit
Rate Type

Arithme c Flat 1 Day any any EONIA

rate

Compound Compound 1 Day any any EONIA

rate

T4M Flat 1 Day 1 Month EONIA

rate

TAM TAM 1 Month 1 Year T4M

TAG TAM 1 Month 1 year T4M

Compounding Conven on, Compounding Frequency, and Compounding Frequency Unit also appear for the Fixed Income nature (see sec on Fixed Income). This
means that you can define Floa ng Rate Notes based on an EONIA rate that use the same methods (Arithme c/Compound/T4M/TAM/TAG) to compute the post-
determined coupon rate.

Opera ons
The following sec ons describe how to enter transac ons in this instrument:

Swap Opening

Swap Closing

Payments

Swap Opening
The opening opera on of a swap is entered as a buy opera on.

An example of the purchase of a generic plain Vanilla 5-year swap in EUR is given below.

A ribute Value

Nature Buy

Quote 5.25% (fixed rate)

Price 0

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A ribute Value

Quan ty 1,000,000

Gross 0
Amount

Net 0 (unless some fees are to be paid or the swap is off-market)

Amounts

Account EUR

Accoun ng 14/07/2007
date

Opera on 14/07/2007
date

Value date 16/072007

Reference Swap Open

Nature

Spot Quote NULL (for currency swaps, this indicates the exchange rate applied on the ini al
and final principal payments.)

Swap Closing
The closing opera on of a swap is entered as a sell opera on. The opening opera on must be referenced to close the posi on.

As an example, the close opera on of the contract opened above must be entered in the following way:

Data Value

Nature Sell

Quote 5.25% (fixed rate)

Price 0

Quan ty 1,000,000

Gross Amount 0

Net Amounts 0

Account EUR

Accoun ng date 16/07/2012

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Data Value

Opera on date 16/07/2012

Value date 16/07/2012

Reference Nature Swap Close

Reference Opera on Code <the code of the opening opera on>

Payments
If there are intervening payments, enter them as Income opera ons.

Business Func ons

The following sec ons describe the business func ons of this instrument:

Valua on

Risk Posi ons

Journal and Event Genera on

Analy cal Indicators

Valua on
The value of the swap is given as the Net present value of each leg.

A fixed leg is discounted using the yield curve specified either at the instrument level, or if not found, the "default" yield
curve for the currency.

For a floa ng leg, the floa ng rate cash flows are generated from the yield curve defined at the floa ng rate instrument
level. These cash flows are then discounted using the yield curve specified either at the instrument level, or if not found, the
"default" yield curve for the currency.

The market "Quote" is the price of a replacement swap at current market condi ons.

To facilitate the understanding of the valua on calcula on of a swap posi on, the instr_flow table can retrieve some useful informa on. To obtain this informa on,
the Journal of Liquidi es func on must be launched at the valua on date, and for each future cash flow it can display:

Rates:

annual_received_rate_p, annual rate of received flow.

annual_paid_rate_p, annual rate of paid flow.

Discount factors of floa ng flows:

disc_factor_received_float_n, discount factor of the floa ng flow of swap instrument received leg (used to discount
received cash flow).

disc_factor_paid_float_n, discount factor of the floa ng flow of swap instrument paid leg (used to discount paid cash
flow).

Discount factors of swap instrument:

disc_factor_received_instr_n, discount factor of the received leg of swap instrument (used in valua on func on).

disc_factor_paid_instr_n, discount factor of the paid leg of swap instrument (used in valua on func on).

Risk Posi ons

The risk posi ons generated are the individual swap legs. The legs are in the same instrument but their nature is Fixed Income and their sub-nature is either Swap
Fixed Leg or Swap Floa ng Leg. The value of a leg is its net present value.

Journal and Event Genera on

In the Journal func on, the swap is split into each component leg. Cash flows are generated for each leg. This includes compu ng the size of floa ng rate cash flows
using forward rates obtained from the yield curve. Finally, flows with the same date and in the same currency are ne ed.

The same process is available in the Event Genera on func on.

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Discount factors
Addi onally, Front Office – PM computes/displays the Discount Factors in the Journal func on providing greater support for liquidity management. Discount Factors
are derived from the Yield-Curve of the Reference Currency. Presently, Front Office – PM will display the discount factors for Single-Currency IRS (i.e., both legs of the
swap contain the same currency EUR, for instance).

Split of IRS cash-flows in Journal func on

The Net Amount field clearly displays the future flow of coupons that will either be received or paid. Further, the Net Amount is decomposed or split into two
addi onal fields of Received Leg and Paid Leg that together cons tute the Net Amount.

Received Leg and the Paid Leg are computed/displayed as a separate columns thereby enabling efficient management/planning of future cash flows.

Net Amount = Received Leg Coupon - Paid Leg Coupon

Analy cal Indicators

The analy cal indicators that you can define on each leg are the dollar dura on and dollar convexity (MDURA() and CONV()). Front Office – PM computes them using
a 0.01% parallel shi in the yield curve.

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Discount Instruments
The discount instrument category includes instruments that are quoted with a rate and for which interest is included in the price (e.g., Treasury Bills, Cer ficate of
Deposit). Typically, the length of this type of instrument is less than one year.

Note that zero-coupon bonds are considered as fixed-income securi es.

Instrument Data
The specific a ributes for this instrument nature are:

Data Descrip on

Valua on The choices are:

Rule
Quoted: The price is retrieved from the instrument price table.

Theore cal: The price is computed off of the associated yield curve.

Reference Instrument: The price is the price of another instrument and a

margin (defined as a chronological data of the discount instrument).

Begin Date Effec ve date.

End Date Maturity date.

Accrual Day count conven on used.

Rule

Price Discount Rate: typically found in the USA (e.g., Treasury Bills, Banker’s acceptances,
Calcula on Commercial papers), in the UK (e.g., Treasury Bills and Banker’s acceptances), and
Rule Ireland (e.g., Treasury Bills). The general formula is: Price = 1 – (Discount rate x
(days/year))

Discount Yield: the general formula is:

Price = 1 / ( 1 + (Discount yield x (days/year)))

Yield The curve whose rates are the basis for calcula ng the theore cal price and for
Curve performing analy c measurements

Opera ons
The following sec ons describe how to enter transac ons in this instrument:

Buying and Selling Discount Instruments

Repurchase Agreements

Buying and Selling Discount Instruments

Discount instruments are purchased and sold using Buy and Sell opera ons. In the case of Withdrawals and Investments, note that the quote is recalculated from the
price in accordance with the price calcula on rule. This happens when you view or modify the opera on. This is because only the price, and not the quote, is saved
to the database when you save an opera on. The quote is then recalculated when you retrieve the opera on.

Repurchase Agreements
A repurchase agreement (or repo) is processed as the sale of a money market instrument or a discount instrument with the simultaneous locking of the repo
posi on.

The locking of the repo posi on can be entered with the buy opera on of the money market or discount instrument by using the “locking” a ributes.

A ribute Descrip on

Locking Nature Repo locking, Repo unlocking.

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A ribute Descrip on

Lock Instrument The instrument that is being repo.

Lock Quan ty The quan ty of instrument being repo.

Addi onally, the following in the table are used for informa on purposes. Front Office – PM can use their default values to compute the quan ty of money market or
discount instrument to purchase or sell:

A ribute Descrip on

Lock Dirty Price The price including accrued interest at which the instrument is repo.

Lock Clean Price The price excluding accrued interest at which the instrument is repo.

Lock Price Margin The "haircut" or margin applied to the price.

When you repo an instrument, you create a posi on with the specified locking nature (e.g., Repo Locking). The posi on is used in the market valua on but is stored
as a separate posi on. In markets where it is unusual to see repo posi ons (that is, where they are considered as real sales), you can filter them out of the valua on.
(For more informa on about filters, refer to the WealthSuite Front Office - Por olio Management - Format and UDS Reference Guide).

Business Func ons

The following sec ons describe the business func ons of this instrument:

Valua on

Risk Posi on

Journal

Analy cal Indicators

Valua on
Valua on is based on the price computed from the rate entered in the price sub-table. If the logic of the por olio is ‘Weighted Mean Price’, Front Office – PM
computes the Cost Price from the weighted average of the Price and not the Quote (rates).

When theore cal valua on is used, the appropriate interpolated rate from the yield curve specified at the instrument level is stored in quotes in Front Office – PM.
The price is recomputed from the discount rate or yield formula.

Note that as the Price Calcula on rule depends on the date at which the price is required; if there is no "price" at exactly the right date, it is recomputed from the
last "quote".

Risk Posi on
The risk posi on is the same as the accoun ng posi on.

Journal
The redemp on of the instrument appears at the maturity date.

Analy cal Indicators

The analy cal indicators are dura on, modified dura on, etc.

Example
Consider a Cer ficate of Deposit (CD) issued by Bank Vontobel for a nominal amount of CHF 10 million for a period of 3 months. The rate is 2.75%. The buyer of the
CD is lending the bank CHF 10 million and at an interest rate of 2.75%.

At the opera on level, the opera on amount is calculated on the basis of the Discount yield price calcula on rule. The quote is 2.75% and the opera on amount is
equal to:

10,000,000 / (1 + (2.75% * 92 / 360)) = 9,930,212.67 CHF.

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Commodi es
Commodi es typically include gold, pla num, and silver but they can also include any underlying commodity of a deriva ve instrument.

Instrument Data
The specific data for this instrument nature is the following:

A ribute Descrip on

Holding Percentage cost of carry per unit. This is used to compute the theore cal prices of
Cost commodity deriva ves.

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Fund Share
A Fund share is characterised by the defini on of its dividend payments and its composi on. If the composi on is known, it is registered in a por olio fund, which is
linked to the Fund share through the por olio's fund weigh ng sub-table (see special cases). If only certain informa on is known, the dividend payments and
composi on are stored in the composi on sub-table. These composi ons can then be used to show the rela ve exposure to individual instruments held within the
fund.

Instrument Data
Fund shares are processed in a similar way to stocks.

Instrument Table

Sub-natures

Specific Pricing Data

Income Payment Events

Instrument Chronological Data

Accrued Interest Management

Private Equity Fund

Signature Por olio

Instrument Table
The following a ributes are specific for this instrument nature:

A ribute Descrip on

Risk Risk incurred from holding this security. The values are:
Nature
Equity

Interest

Commodity

Currency

Hybrid, which means that the risk comes from mul ple sources but is
itemised via the components of the instrument created using the
Instrument Composi on sub-table.

Payment Number of Payment Frequency Units between two dividend payments (see below).
Frequency

Payment Unitary period between two dividend periods. The possible values are:
Frequency
Unit Month

Quarter

Semester

Year

If, say, a Fund share pays a dividend every two months, you enter the following:

Payment Frequency = 2

Payment Frequency Unit = Month

If you do not complete these fields, dividends will not be projected in any cash flow projec on. If a frequency is entered, the last dividend with a "dividend
projec on flag" (see sec on Income Payment Events) set to Yes will be projected at this frequency.

Income Payment Events

You create Instrument Income Payment events in the income event table that is used to store dividends. This table also lets you create Income Payment events
based on Accrued Interest Management.

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A ribute Descrip on

Projec on Determines if this dividend is projected in future cash flows at the frequency
specified in the Instrument table. If the flag is set to No, the dividend is not
projected. If the flag is set to Yes, but the frequency in the Instrument is not
defined, the dividend will not be projected either.

Validity Indicates the date from which this dividend is valid. If a cash flow projec on is
Date required from a date preceding this validity date, the dividend will not appear.

Begin This is the date on which the dividend goes ex. If no “first coupon date” is specified,
Date this is also the payment date of the dividend.

First If specified, indicates when the value date of the payment of the dividend occurs. If
Coupon not specified, the value date of the dividend is the Begin Date. It is prac ced in
Date some markets, to define the beneficiaries of the dividend payments before the
actual payment date of the dividend. The holder of the Fund share before the ex-
date is en tled to the dividend, even if the holder sells it before the payment date.
Reciprocally, if the holder has acquired the Fund share a er the ex-dividend date
but before the payment date, the holder will not be en tled to the current
dividend.

Currency Indicates the currency of the dividend. It is suggested that this defaults to the
instrument currency.

Dividend Amount of the dividend.

The combina on of an Instrument, dividend projec on flag (Projec on check box), Validity Date, and Begin Date is unique. This means that an extraordinary
dividend and a normal repe ve dividend can be paid on the same day but thet two repe ve dividends cannot occur on the same day. You can also use the Validity
Date to specify that the presumed dividend is a defined amount (event 1) and that the known dividend (event 2) was entered later, rendering the presumed dividend
invalid from the Validity Date of event 2.

Instrument Chronological Data

The instrument chrono table contains instrument data that changes over me.

A ribute Descrip on

Nature Select Number of Shares. Used in fund spli ng (see below).

Accrued Interest Management

A ributes
Front Office – PM offers the possibility to store interest rates, value these interest rates as accrued interest, and generate them as Income Opera ons for Money-
Market and Fixed Income Fund Shares sub-types.

Two new a ributes are available for Fund Share Instrument and must be used to manage accrued interest:

Accrued Interest flag

Values: Yes/No. Se ng this flag to Yes allows for the calcula on of accrued interest for Fund Shares.

Sub-nature

Two new Instrument sub-natures have been added as:

Money Market Fund Share

Fixed Income Fund Share

Interest Rate Condi ons

The daily interest rates are entered in the Interest Rate Condi on sub-table.

The Validity Date is the date from which the condi on is valid; it usually is the instrument’s Begin Date or the first day of accrual calcula on.

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The Begin Date is the date from which the interests accrue at a new interest rate. Without an End Date, this Interest Rate will be applied un l a new occurrence is
set.

The Interest Rate Calcula on must be set as ‘Fixed’.

The Interest Rate Value is expressed as a percentage and supports seven decimals.

Private Equity Fund

Instrument Table
The following a ributes for the instrument table are specific for a Private Equity Fund:

A ribute Descrip on

Sub Nature The following sub-natures of Fund Share instruments determine the different
tranches of a Private Equity (PE) fund:

PE-Ini al Commitment

PE-Drawdown

PE-Capital Call

PE-Actual PE Security

These four components of a PE fund are linked to each other by way of a common
reference and the parent instrument.

Valua on Quote=0: The PE fund share instrument of sub-nature PE-Ini al

Rule Commitment and PE-Drawdown is never quoted. For valua on purposes,
the quote is assumed to be 0.

Quote=1: The PE fund hare instrument of sub-nature PE-Capital Call is

never quoted. For valua on purposes, the quote is assumed to be 1.

Quoted: The quote can be found in the instrument price table for the PE
fund share instrument of sub-nature PE-Actual PE Security.

Common This a ribute is used to link the four components of a PE fund

Reference

Parent This a ribute will hold the value of the instrument of sub-nature PE-
Instrument Ini al Commitment and will be used to link the four components of a PE
fund

Private Equity (PE) Fund Issue/Redemp on Events

Front Office – PM handles the various redemp on and issue events of the PE units in the following manner:

Allotment of PE units (nature 1- Total Issue)

Capital Call (nature 11- Capital to Pay)

Capital Return before Allotment (nature 13- Capital Return)

Capital Return a er Allotment (nature 12- Capital To Receive)

Reduc on in the Commitment (nature 7- Capital Reduc on)

PE Maturity (nature 3- Final Redemp on)

Allotment of PE units (nature 1- Total Issue)
The issue/redemp on event table must be used to store the relevant informa on related to the allotment of the PE fund.

The following must be defined in the Iss/Redm Event table:

A ribute Descrip on

Nature Total Issue indicates the amount paid out for the allotment of PE units.

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A ribute Descrip on

Validity Date Date from which this total issue is valid.

Begin Date Date at which the total issue occurs.

Quote Defaulted to 0.

End Date Last date at which the event occurs.

Price Defaulted to 0.

Propor on Mandatorily defined as 100% on the Capital Called amount.

Capital Call (nature 11- Capital to Pay)

The issue/redemp on event table must be used to store the relevant informa on related to the capital call made by a PE fund.

The following must be defined in the Iss/Redm Event table:

A ribute Descrip on

Nature Capital to Pay indicates the amount paid out for the capital call made by the PE
fund.

Validity Date from which this capital to pay is valid.

Date

Begin Date Date at which the capital to pay occurs.

Quote Defaulted to 0.

End Date Last date at which the event occurs.

Price Defaulted to 0.

Propor on Defaulted to 100% on the Capital Called amount but the user can define any
propor on between 0-100.

Capital Return before Allotment (nature 13- Capital Return)

The issue/redemp on event table must be used to store the relevant informa on related to the capital return event.

The following must be defined in the Iss/Redm Event table:

A ribute Descrip on

Nature Capital Return indicates the amount returned before the allotment of PE
units.

Validity Date Date from which this capital return is valid.

Begin Date Date at which the capital return occurs.

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A ribute Descrip on

Quote Defaulted to 0.

End Date Last date at which the event occurs.

Price Defaulted to 0.

Propor on Defaulted to 100% but the user can define any propor on between 0-100.

Base amount for Defaulted to Ini al Commitment but the user can define the propor on on
propor on the last capital call amount as well.

Capital Return a er Allotment (nature 12- Capital To Receive)

The issue/redemp on event table must be used to store the relevant informa on related to the capital to receive event, which indicates the capital being returned
a er the allotment of PE units.

The following must be defined in the Iss/Redm Event table:

A ribute Descrip on

Nature Capital To Receive indicates the amount returned a er the allotment of PE

units.

Validity Date Date from which this capital to receive is valid.

Begin Date Date at which the capital to receive occurs.

Quote Defaulted to 0.

End Date Last date at which the event occurs.

Price Defaulted to 0.

Propor on Defaulted to 100% but the user can define any propor on between 0-100.

Base amount for Defaulted to Ini al Commitment but the user can define the propor on on
propor on the last capital call amount as well.

Reduc on in the Commitment (nature 7- Capital Reduc on)

The issue/redemp on event table must be used to store the relevant informa on related to the reduc on in the ini al commi ed amount of a PE fund.

The following must be defined in the Iss/Redm Event table:

A ribute Descrip on

Nature Capital Reduc on indicates the reduced ini al commitment amount to be

returned.

Validity Date Date from which this capital reduc on is valid.

Begin Date Date at which the capital reduc on occurs.

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A ribute Descrip on

Quote Defaulted to 0.

End Date Last date at which the event occurs.

Price Defaulted to 0.

Propor on Defaulted to 100% on the ini al commitment but the user can define any
propor on between 0-100.

Propor on Defaulted to 100% but the user can define any propor on between 0-100.

Base amount for Defaulted to Ini al Commitment but the user can define the propor on on
propor on the last capital call amount as well.

Propor on Defaulted to 100% but the user can define any propor on between 0-100.

Base amount for Defaulted to Ini al Commitment but the user can define the propor on on
propor on the last capital call amount as well.

PE Maturity (nature 3- Final Redemp on)

The issue/redemp on event table must be used to store the relevant informa on related to the final maturity of the PE fund.

The following must be defined in the Iss/Redm Event table:

A ribute Descrip on

Nature Final Redemp on indicates the maturity of a PE fund.

Validity Date from which this final redemp on is valid.

Date

Begin Date Date at which the final redemp on occurs.

Quote Defaulted to 0 but the user has to set the price at which the actual PE security
needs to be matured.

End Date Last date at which the event occurs.

Price Defaulted to 0 but the user has to set the price at which the actual PE security
needs to be matured.

Propor on Defaulted to 100% on the ini al commitment. All open posi ons pertaining to all
components of PE fund will be affected as well as the corresponding opera ons
generated by the Event Genera on func on.

Signature Por olio

The following a ributes for the instrument table are specific for a signature por olio:

A ribute Descrip on

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A ribute Descrip on

Sub Nature The following sub-nature of Fund Share instruments determine the signature
por olio:

External Product

Price Por olio Specific Price: For signature por olio, the price is searched in
Calcula on por olio_instr_price instead of en ty instr_price.
Rule

Fund Composi on
The following sec ons describe the composi on of funds:

Fund as a Managed Por olio

Fund as a Composite Instrument

Fund as a Managed Por olio

If the fund is managed in house, you can link the por olio that holds the fund with the Fund Share instrument. You do this using the fund weigh ng sub-table in the
por olio table.

There are three methods for compu ng the quan ty of each individual posi on when looking at the exposure due to holding the Fund share. The scaling coefficient
applied to a posi on quan ty depends on the Fund Spli ng Calcula on Rule applica on parameter FUND_SPLIT_CALC_RULE. The possible values are:

0: the quan ty of a fund por olio posi on is mul plied by a ra o of the value of one Fund share to the value of the fund
por olio (= fund share price / por olio market value).

1: the quan ty of a fund por olio posi on is mul plied by a ra o of the value of one Fund share to the sum of the daily
outstanding for each fund class mes its value (= fund share price / SUM(fund share i outstanding * fund share i price)).

2: the quan ty of a fund por olio posi on is mul plied by a ra o of the value of one Fund share to the Net Asset Value
(NAV) of the fund por olio (= fund share price / NAV).

Below is a detailed descrip on of these fund spli ng methods and their corresponding formula:

Method 1: the quan ty of a fund por olio posi on is mul plied by a ra o of the value of one Fund share to the value of the
fund por olio:

Where

qX = quan ty of instrument X in fund spli ng

nj = price of Fund share class j

yi = number of shares in the por olio of customer i

QX = number of instrument X in the mutual fund por olio

MV = Market Value of the mutual fund por olio in the Fund share instrument currency

Method 2: the quan ty of a fund por olio posi on is mul plied by a ra o of the value of one Fund share to the sum of the
daily outstanding for each fund class mes its value:

Where

qX = quan ty of instrument X in fund spli ng

nj = price of Fund share class j

mj = daily outstanding for every share class (entered in the Number of Shares instrument chrono of the Fund share instrument)

yi = number of shares in the por olio of customer i

QX = number of instrument X in the mutual fund por olio

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Method 3: the quan ty of a fund por olio posi on is mul plied by a ra o of the value of one Fund share to the NAV of the
fund por olio:

Where

qX = quan ty of instrument X in fund spli ng (the unknown variable)

nj = price of Fund share class j (this is the price of the Fund share instrument that is split)

yi = quan ty of Fund shares in the por olio of customer i

QX = number of instrument X in the mutual fund por olio equal to or greater than the posi on in the por olio to which the Fund share instrument is linked.

Note: Net Asset Value (NAV) of the mutual fund por olio (the por olio to which the Fund share instrument is linked) is the Fund share instrument currency,
which in Front Office – PM is equal to or greater than the last Net Asset Value por olio chrono at or before the Domain Ini al Date.

You can also choose the method used throughout the Domain. The following are the different permi ed values of the fund_split_rule_e field in the Domain:

Spli ng (pre-Release 4.10 standard behaviour): If the Fund share instrument is linked to the Mutual Fund por olio through
the fund_weight table, the spli ng method used depends on the FUND_SPLIT_CALC_RULE system parameter:

If FUND_SPLIT_CALC_RULE = 0, method 1 is used.

If FUND_SPLIT_CALC_RULE = 1, method 2 is used.

If FUND_SPLIT_CALC_RULE = 2, method 3 is used.

Otherwise, if the Fund Share instrument is not linked to a por olio through the fund_weight table, Front Office – PM looks at the composi on table of the Fund
share. If this composi on table is populated, the spli ng is performed according to the instruments found in this composi on table.

Forced Composi on: If the Fund share has a composi on defined, the split is performed according to this composi on,
otherwise Front Office – PM looks for a linked por olio to perform the split depending on the FUND_SPLIT_CALC_RULE
system parameter:

If FUND_SPLIT_CALC_RULE = 0, method 1 is used.

If FUND_SPLIT_CALC_RULE = 1, method 2 is used.

If FUND_SPLIT_CALC_RULE = 2, method 3 is used.

Spli ng method 1: This is the old method that was performed when the FUND_SPLIT_CALC_RULE system parameter
was set to 0 (see the descrip on of method 1 above). The FUND_SPLIT_CALC_RULE system parameter has no impact on
the fund spli ng if this op on is chosen in the Domain.

Spli ng method 2: This is the old method that was performed when the FUND_SPLIT_CALC_RULE system parameter
was set to 1 (see the descrip on of method 2 above). The FUND_SPLIT_CALC_RULE system parameter has no impact on
the fund spli ng if this op on is chosen in the Domain.

Spli ng method 3: This is the new method that is used to perform the spli ng (see the descrip on of method 3 above).
The FUND_SPLIT_CALC_RULE system parameter has no impact on the fund spli ng if this op on is chosen in the
Domain. If this method is not applicable (because some of the informa on described above is missing, for example, the NAV
por olio chrono), no fund spli ng is performed. The first step of method 3 is to look for the link to the mutual por olio
since in this case the composi on of a Fund share is not necessary. If there is no link to the mutual por olio, Front Office –
PM does not check for the existence of a Fund share composi on at all. This means that the Fund share is displayed in the
fund spli ng as it is in the accoun ng view.

For each method, if some of the required informa on is not provided, no fund spli ng is performed. Moreover, the Fund share is displayed as a standard posi on in
fund spli ng if there is neither a link between the Fund share instrument and the mutual fund por olio or a composi on. This means that the Fund share posi on is
shown as in the accoun ng view.

Notes:

You must specify the number of shares in the chronological data of the instrument and not in the Fund weigh ng logical
a ribute of the por olio.

You must specify the NAV in the chronological data of the por olio if FUND_SPLIT_CALC_RULE = 2.

Data Security
To manage the data security on fund spli ng, a specific Data Profile for fund spli ng is defined at the user level.

A Fund Profile can be useful if the Fund Por olios are only managed by few users but all users can launch a valua on with a fund spli ng op on:

For users who can manage Fund Por olios, their:

Data Profile composi on includes the Data Security Profiles of Fund Por olios

For users who cannot manage Fund Por olios, their:

Data Profile composi on does not include the Data Security Profiles of Fund Por olios

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Fund Profile composi on includes the Data Security Profiles of Fund Por olios

In the valua on func on, the security control of Fund Spli ng on Fund Por olios is applied on the user’s Fund Profile a er a rejected security control on the user’s
Data Profile.

Fund as a Composite Instrument

If the fund is not managed in house, you can s ll enter data related to the fund’s contents as a composite instrument. The possibili es are:

The exact composi on is known.

For example, one Fund share represents an exposure to:

0.03125 IBM stock

0.0768 5% Royal Dutch 2003

etc.

In this case, the quan es are maintained in the instrument composi on sub-table and the Composite Calcula on Rule (index_calc_rule_e) of the Fund Share
instrument must be set to "Sum".

Percentages invested in quoted indexes are known.

For example, one Fund share represents an exposure to:

25 % DAX

35 % SMI

40 % MSCI Europe

In this case, the quan es are maintained in the instrument composi on table (as 0.25, 0.35 and 0.4) and the Composite Calcula on Rule of the Fund Share
instrument must be set to Percentage of Values.

If, in the example, the SMI is 7000 and the Fund share is 200, the posi on is:

0.01 (i.e. 200 * 0.35 / 7000) SMI @ 7000

Percentages invested in unquoted indexes are known.

For example, one Fund share represents an exposure to:

20 % Indonesian oil companies

35 % Korean car companies

45 % Thai government bonds

In this case, these index instruments can be created with Valua on rule = Parent. The quan es are maintained in the instrument composi on table (as 0.25,
0.35, and 0.4). Set the Composite Calcula on Rule of the Fund Share instrument to “Sum”.

If, in the example, the Fund share price is 200, the posi on is:

0.2 Indonesian oil company index @ 200

Opera ons
The following sec ons describe how to enter transac ons in this instrument:

Issuing and Redeeming Fund Shares

Dividends

Issuing and Redeeming Fund Shares

Issuing and redeeming Fund shares is performed using buy and sell opera ons. There is no link between the number of shares issued and these opera ons.

Dividends
Dividends are paid using an Income opera on.

Business Func ons

The following sec ons describe the business func ons of this instrument:

Valua on

Fund Spli ng

Risk Valua on

Journal

Event Genera on
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Valua on
Fund shares are valued according to their Price Calcula on rule and Valua on rule.

Note: A Signature Por olio instrument is a fund share with a sub-nature as an external product and a Price Calcula on rule as por olio specific price. For
instruments with this se ng, the Valua on func on will not search for prices in instr_price but instead in en ty por olio_instr_price only.

Fund Spli ng
If fund spli ng is required, the exposure in the component posi ons is shown. Displaying the Fund share and/or the component instruments is done by filter mainly
on the Extended Posi on Fund Split field (see the Data Model for more informa on on the extended posi on logical table).

Note that:

Fund spli ng is only available for the valua on func on.

For a logical fusion at the Front Office – PM level, a “Risk” posi on (derived from a fund spli ng or a Risk View) cannot
merge with an “Accoun ng” posi on.

Fund Weigh ng Logical

You can split a fund using the Fund Weigh ng sub-table of the in the por olio table.

To use the por olio to define a fund, select Mutual Fund from the Nature field's drop-down list. The Fund Share instrument must be put in the Fund Weigh ng
logical a ribute. Click Fund Weigh ng bu on at the bo om of the screen.

When running a valua on of a por olio,the posi ons in the por olio at the fund valua on date show the composi on of the fund. The weight of the posi on in an
instrument is simply calculated as the posi on's current market value divided by the total market value.

Fund share units must be bought in a standard por olio, in this case AAA_Fundshare. That way, the por olio that holds the Fund Share units can be split in the
Valua on to reflect the mutual fund posi ons associated with the Fund share.

Risk Valua on
If the Fund share is defined as Hybrid, it is replaced by its component instruments in a risk exposure valua on. This is independent of the fact that fund spli ng is
required. Therefore, to obtain a full exposure to all components, it is recommended to enable fund spli ng if you require risk posi ons.

Journal
Typically, the Journal func on shows all dividend projec ons as well as the cash flows pertaining to the PE fund.

Event Genera on
Typically, the Event Genera on func on generates the relevant opera ons pertaining to the various events of a PE fund.

Examples
Equity Index Fund

Fund as a Managed Por olio

Equity Index Fund

Take an interna onal equity fund whose composi on is sta c and price is published once a month. There is no expected dividend or income payment (if there is one,
you enter it in the income event sub-table as an extraordinary event).

Enter the components in the composi on sub-table with their weights (Quan ty field), for example, instrument 022213 has
a weight of 15%. Note that Front Office - PM handles the changes in the composi on or weights.

Set the Composite Calcula on Rule field to Percentage Value as the value of the fund is the weighted sum (according to the
%) of its components.
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Set the Valua on Rule field to Composite. That way, if there is no price in the chrono table (which is only available once a
month), then Front Office – PM calculates the value of a share according to the weights and prices of the indices composing
the fund.

Set the Risk Nature field to Hybrid in the main instrument table. This means that in the Risk View of the valua on, the
holding of a share of this fund is replaced by its components (independently of the “Fund Spli ng Calcula on Rule”).

At the opera on level, Front Office – PM can recalculate the composite value of the Fund share. The quote value is computed from the prices entered for each
component index.

Fund as a Managed Por olio

This sec on refers to an umbrella short-term fund composed of monetary funds in various currencies, some capitalising and others distribu ng dividends.

The Composite Calcula on Rule field is set to Percentage Value and the ra o for a capital share is equal to:

Price of the capital share / (number of capital shares * capital share price + number of income shares * income share price)

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Curves
The Curve nature is used to define a term structure, in par cular yield curves and vola lity curves. For an interest rate term structure, the Curve nature defines the
rela onship between the maturity of a Fixed Income instrument and the realised return of the instrument if it is held to maturity. For a vola lity term structure, it
defines the rela onship between me and vola lity.

The yield curve used is the zero-coupon yield curve, which gives the yield to maturity as a func on of the me to maturity for a zero-coupon bond.

The basis of theore cal valua ons of all interest-bearing instruments (e.g., fixed income, money market, discount instruments, swaps, etc) is the yield curve
associated with the instrument. It is composed of zero-coupon rates. When the func on cannot find an associated yield curve with corresponding rates, it looks for
the default rate of the instrument currency. The default rate of the instrument currency is typically the annually compounded risk-free rate that is used to compute
the prices of op ons. For interest-rate instruments, the corresponding yield curve must be entered.

The func on is sensi ve to the prices entered for each rate. This might appear obvious but if a price is missing, the result is zero and no extrapola on is carried out. If
the rate frequency is missing from the instrument defini on, the result is incorrect.

Characteris cs
A Curve is a composite instrument. The components are "rate" instruments. For example, the EUR yield curve contains the characteris cs of the Curve (e.g.,
interpola on rules, calendar conven ons). Each point is defined by a rate instrument (e.g., 1 month EUR rate, 6 month EUR rate, 1 year EUR rate, etc). Each rate has a
price (1 month EUR rate is quoted at 2.75% on the 23rd of March 2008, etc).

Instrument Data
The specific a ributes of curves are the following:

A ribute Descrip on

Reference Currency of the curve (e.g., EUR yield curve).

Currency

Sub-nature One of the following:

"None" for yield curve

Vola lity curve

Default Flag Sets the curve as the default curve for the defined currency. You can only define
one default curve per currency.

Compounding informa on

When genera ng floa ng rate cash flows, the basic rates are some mes compounded. The
following a ributes define if and how this occurs:

Compounding Sets the type of compounding to be performed, if any (e.g. "none", Flat, etc.).
Conven on

Compounding Number of units in one compounding period.

Frequency

Compounding Unit between two compounding dates.

Frequency
Unit

Interpola on conven on

When compu ng rates that are in between two points of the curve, it is necessary to interpolate.
The following data defines how this is done:

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A ribute Descrip on

Interpola on Sets the type of interpola on to be performed. For x1 < x <x2 the value y(x) will
Conven on be calculated as follows:

Linear extrapola on: Standard linear interpola on

y(x) = y(x1)+(x-x1)*(y(x2)-y(x1))/(x2-x1)

Linear flat end: A er the last point found, the rate is assumed to be
constant

Excl. Incl.: Staircase interpola on : y(x) = y(x2)

Incl. Excl.: Staircase interpola on : y(x) = y(x1)

Cubic spline: Interpola on based on the third degree polynomial,

which fits best to the observed values

Interpola on Indicates what is to be interpolated. The permi ed values are:

Rule
Spot: indicates that spot (con nuous) rates are to be used

Discount: Interpola on between discount rates

Growth: Interpola on between inverse discount factors

Forward: Interpola on between forward rates. (Note that it is

assumed that forward rates are constant between grid points)

Accrual Rule Day count method for interpola ng in the dates. Note that a 30 / x rule will
induce discon nui es because the 30th and 31st of a month will get the same
discount factor. To avoid this, it is recommended to use an ACT / x rule.

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A ribute Descrip on

Interest Rate If the interpola on rule is spot or forward, then the type of spot rate in which to
Conven on interpolate is determined by the interest rate conven on.

Con nuous: As in e-rt where r is the con nuously compounded yield

and t term to payment in frac onal years.

Compound: As in (1 + r / qb) –t * qb where r is the compounded yield,

qb the quote base and t the term to payment in frac onal years.

Simple MM: As in 1 / (1 + rt) where r is the simple money market yield

and t is the term to payment in frac onal years. This conven on is the
default for money market instruments.

Compound Simple: When a cash flow with more than 1 future

payment is discounted as COMPOUND, and only the final payment is
outstanding, SIMPLE_MM is used. If only one payment remains and
this falls more than 12 months in the future, COMPOUND will be used
(useful for valuing longer zero coupon bonds).

BRAESSFANGMEYER: The present value is computed by calcula ng the

horizon value and discoun ng this value back to the evalua on date,
using compounded yields for whole years and simple money market
yields for frac onal years.

Moosmuller: Similar to the BRAESSFANGMEYER conven on except

that periods – rather than years – determine whether compounded
yields or simple money market yields are used for discoun ng.

Mair: The horizon value is determined using a reinvestment rate or an

array of reinvestment rates.

Discount: As in 1 – r*t where r is the discount yield and t the me to

payment in frac onal years. This conven on is used for T-Bills, CDs,
etc.

US-Treasury Conven on: Discounts payments exponen ally using

semi-annual compounding in normal periods. Any frac onal period is
discounted linearly. In the last period linear discoun ng is used.

JGBYTM: A special Japanese conven on for calcula ng yields.

Simple Repo: Equivalent to SIMPLE_MM except that any payment is

first discounted to the maturity date, and then back to the PV date.

CompoundSimpleOdd: A cash flow that contains payments more than

12 months in the future is discounted as COMPOUND. Cash flows of
12 months or less are discounted as SIMPLE_MM.

Payment Indicates the payment frequency of cash flows or interest rate compounding;
Frequency currently, should be set to 1 year, except when transla ng series of zero coupon
rates into discount factors.
Payment
Frequency
Unit

The rates that make up the yield curve are contained in the instrument composi on sub-table.

It is also possible to define one yield curve with reference to another one. In this case, set the main yield curve as the parent instrument. To define a spread, use the
Margin nature in the instrument chrono of the yield curve. The margin percentage must be entered as a whole number (e.g., 2 for 2%). In this case, it is not required
to maintain the instrument composi on of the yield curve, as the composi on of the parent yield curve and the spread will be used for the calcula ons.

Business Func ons

The yield curve is used in the Valua on and the Journal and in the computa on of risk posi ons of standard interest rate swaps and forward rate agreements.

Remarks
Exponen al interpola on of discount factors is obtained using linear interpola on in con nuously compounded rates. In par cular:

Interpola on Conven on: Linear Flat End

Interpola on Rule: Spot

Interest Rate Conven on: Con nuous

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Deliverable Instruments
The Deliverable instrument nature is a composite instrument that is designed to contain a list of deliverable bonds for bond futures contracts so that cheapest to
deliver issues and conversion factors can be automa cally computed. No func onality currently exists for this nature of instrument.

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Debts
There are several ways to create debt instruments. If the debt is a fixed amount redeemed on expira on and has one or several interest payments, you can enter it
as a short posi on in a Money Market, a Discount, or a Fixed Income instrument. However, if the amount of the debt is variable (for example, it depends on the
market value of the por olio), you can create instruments with a Debt nature.

The market value of debt instruments can have one of the following characteris cs: it can either grow over me and then be paid (e.g., a management fee that at
the end of the year will be x% of the market value of the por olio increases with me), or be treated as an ini al expense that is amor sed over me (e.g., start up
costs of mutual funds that are amor sed over a given period).

It is a characteris c of debt instrument nature that you can easily include or exclude them from financial func ons using the Include / Exclude Debt checkbox in the
Domain.

Instrument Data
The following sec ons describe which data to enter and where:

Defining the Amount of Debt

Expense Accrual

Amor sa on

Defining the Amount of Debt

The term "amount of debt" means the annual amount of debt to be paid even if the payments occur several mes a year.

If the amount of debt is constant

In the Create/Modify Instrument screen, set the Valua on Rule field to Quote = 1 from the drop-down list.

The quan ty of the opera on is the amount of debt.

If the amount of debt varies over me, it can be defined by an algorithm

In the Modify Instrument screen:

Set the Valua on Rule field to Script from the drop-down list.

Click Base Value bu on and enter a script to define the basis of the debt amount computa on.

Click Mul plier bu on and enter a script to define by what value the base value is to be mul plied to obtain the
amount of debt.

The quan ty of the opera on is set to 1.

Example:

The base value is the market value of the por olio excluding Fund shares issued by the same Fund manager but
including all debts.

The mul plier is 0.2% above 1,000,000 CHF and 0.5% below.

Notes:

If the Fund module is enabled, the mul plier percentages can be stored in the accoun ng period elements and retrieved using a script keyword. The percentages
can then be recorded in a history list.
Script Valua on rule
The Script Valua on rule ini ates a complete fund valua on process to calculate its value. This means that a complete fund valua on is also performed in the
Journal and Event Genera on func ons for this purpose (if there are debts in the por olio). The simple Script Valua on rule does not start a fund valua on but
simply evaluates the script as it stands. This makes the Journal and Event Genera on func ons more efficient.

Expense Accrual
In this case, the value of the debt increases over me on a pro rata basis star ng from 0. The value of the debt is then dependent on the amount of debt, the
payment frequency, and me.

The frequency and payment dates are defined as an "Issue / Redemp on Event".

A ribute Descrip on

Nature Select Debt Provision.

Begin Date Date of the first debt payment.

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A ribute Descrip on

End Date Date of the last debt payment.

Frequency Frequency of the debt payment.

Frequency Unit

Note that there can only be one valid Debt Provision event per instrument.

Amor sa on
This case is used to gradually write off an ini al cost and is done by crea ng a posi on in an asset that offsets the ini al cost and decreases over me. The value of
the instrument depends on the amount of debt, the amor sa on period, and me.

The amor sa on periods and speed are defined in an "Issue / Redemp on Event".

A ribute Descrip on

Nature Select Amor sa on.

Begin Date Star ng date of the amor sa on period.

End Date End date of the amor sa on period.

Propor on Percentage of debt amor sed between the Begin and End Dates (normally 100%).

Note that you can define several amor sa on periods if the speed at which the debt is amor sed changes over me (e.g., 20% over the first 2 years then 80% over
the next 3 years).

Opera ons
The following sec ons describe how to enter transac ons in this instrument:

Acquiring an "Accrual Expenses" debt

Paying an "Accrual Expenses" debt

Re ring an "Accrual Expenses" debt

Acquiring an "Amor sa on" debt

Re ring an "Amor sa on" debt

Acquiring an "Accrual Expenses" debt

In this case, the debt is "sold" with the following characteris cs:

A ribute Descrip on

Quan ty As defined in the Data Entry sec on (either the debt amount or 1 if defined by
scripts).

Quote 0

Paying an "Accrual Expenses" debt

This is done using an income opera on.

Re ring an "Accrual Expenses" debt

The debt is purchased at 0 a er the last income opera on.

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Acquiring an "Amor sa on" debt

In this case, the debt is "bought" with the following characteris cs:

A ribute Descrip on

Quan ty As defined in the Data Entry sec on (either the debt amount or 1 if defined by
scripts).

Quote 1

Re ring an "Amor sa on" debt

The debt is sold at 0 at the end of the amor sa on period.

Business Func ons

The following sec ons describe the business func ons of this instrument:

Valua on

Journal and Event Genera on

Valua on
Inclusion of debts in a valua on is done by se ng the Domain parameter Include / Exclude Debt.

A ribute Descrip on

Expense The price of these debts is ini ally 0 and increases to 1 (adjusted for the payment
accrual frequency). As the posi ons are nega ve, the market value decreases over me.

Amor sa on The price of these debts is ini ally 1 and decreases to 0. As the posi ons are
posi ve, the market value decreases over me.

Journal and Event Genera on

A ribute Descrip on

Expense These debts show regular payment schedules based on the current es ma on of
accrual the amount of debt.

Amor sa on These debts are sold at the end of the amor sa on period.

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Op on Bonds
Op on Bonds are Fixed Income instruments to which one or more op ons or warrants are a ached. They are entered as composite instruments when the
components are Fixed Income instruments (typically, ex-op on bonds) and one or more op ons. The general processing is the same as that of Fixed Incomes and is
described under that nature.

You must create Exchange Events to define how stripping occurs.

Instrument Data
The following data in the main instrument table is important for this instrument nature:

A ribute Descrip on

Valua on The choices are:

Rule
Quoted: The price is found in the instrument price table and accrued
interest is computed using the data defined in the op on bond.

Composite: The price of the op on bond is the weighted sum of the

component instruments. This is the price of the ex-bond and the price of
the op on. The accrued interest is that of the Fixed Income instrument
defined as a component of the op on bond.

Risk Hybrid: The risk posi ons are that of the ex-bond and the op on (underlying
Nature exposure).

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Conver ble Bonds

Conver ble Bonds are Fixed Income instruments that can or must be converted into other instruments between specific dates. The general processing is iden cal to
that of Fixed Income and is defined under that nature. Furthermore, all a ributes that are required for the interest calcula on must be filled in the same way as for a
Fixed Income instrument.

You must create Exchange Events to define how conversion occurs. In par cular, the nature must specify whether the holder or the issuer decides the conversion.

The relevant a ributes in the Exchange Event are the following:

A ribute Descrip on

Validity Date Date from which the conversion is known.

Begin Date Date at which the bond can be converted.

Nature The kind of conversion, currently only op onal conversion (holder). The Issuer
op onal conversion is not processed.

Replacement If set to Yes, bond is exchanged.

Flag

Reference Number of bonds exchanged, usually 1.

Quan ty

New Instrument Number of new instruments received against the number of bonds defined in
Quan ty the Reference Quan ty field.

New Instrument Specifies the instrument that is received in the exchange.

Currency Currency in which the exchange takes place.

End Date Date un l which the exchange can take place.

End Validity Date un l which the event is valid.

Date

Business Func ons

The following sec ons describe the business func ons of this instrument:

Valua on

Risk Posi ons

Journal

Conver ble Bonds Quoted in Unit

Valua on
Generally, conver ble bonds are quoted instruments, and thus valuated by the market price plus accrued interest.

It is also possible to calculate a theore cal price by se ng the Valua on Rule to Theore cal. In this case, Conver ble Bonds are valued as the sum of the NPV of the
bond and the value of its a ached op on, priced using the Cox, Ross & Rubinstein formula. Theore cally, the value of a Conver ble Bond is Max(N*S,B). We have the
choice between N*S (value of the underlying) and B (value of the bond).

The value of the bond is computed as an NPV either using the yield curve defined at the instrument level or using the default yield curve of the reference currency.

The op on price is valued using the binomial model with the following parameters:

Underlying price adjusted by the conversion factor, underlying quan ty/bonds quan ty

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Strike, the value of the bond at the conversion date adjusted by the current price divided by the par value of the bond,
usually 100

Underlying vola lity

BIN_NUM_OF_PERIOD system parameter, the number of periods used in the model

Yield curve used to determine the risk free rate

Valua on computes the theore cal price, dollar dura on, dollar convexity, BPV, and Greeks (delta, gamma, theta, vega, d(vega)/d(vol)).

Risk Posi ons

The risk posi ons of a Conver ble Bond are the underlying (normally a stock) and a Fixed Income instrument (usually a nega ve posi on). The Fixed Income
represents the amount to borrow to buy the stock if the hypothe cal single Fixed Income contained in the Conver ble Bond is sold.

You can create the theore cal composi on of the Conver ble Bond (i.e., a Fixed Income instrument and one or more op ons), using the Instrument composi on
structure and se ng the Risk Nature of the instrument to “Hybrid”. In this case, the risk posi ons of the Conver ble Bond are those of the component instruments.

Journal
With the coupon characteris cs equivalent to Fixed Income instruments, the journal shows the data related to the bond, but not the possibility of conversion.

Conver ble Bonds Quoted in Unit

If the Price Calcula on rule is set to Quote in Unit, the price is the quote divided by the face value. This method is especially used for fixed income and conver ble
bonds.

Important note: The instrument’s quote is always considered as dirty, which means that accrued interests are included in the quote.

The user can consider either a dirty price or a clean price:

For dirty price, price = quote / face value. The accrued interest flag of instrument must be set to N.

For clean price, price = quote/ face value – AI (accrued interests). The accrued interest flag of instrument must be set to Y.

If a conver ble bond has a Price Calcula on rule set to Quote in Unit, the effect on the business func ons is as follows:

Data Descrip on

Opera on Quan ty * price * face value

gross
amount

Opera on (Quan ty * price * face value) + accrued interest

net amount

Opera on Quan ty * face value * interest rate * #days / basis

accrued
interests Accrued interests are calculated only if accrued interest flag = Yes

Accrued Accrued interests are calculated only if accrued interest flag = Yes
interests
The accrued interest computed in the valua on and the opera on must also take
into account this face value. This means that the computa on is performed as
follows:

Accrued interests = quan ty * face value * interest rate * #days / basis

With # days = current date – last coupon payment date or instrument.

Begin date The basis depends on the accrual rule (e.g., 365 if the accrual rule is
“Actual/365”).

Market Market Value computed by the Valua on is performed as follows:

Value
Ref Market Value = quan ty * instrument price * face value * exch. rate (between
the Domain currency and the instrument price currency) + accrued interest

Accrued interests are calculated only if accrued interest flag = Yes

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Data Descrip on

Incomes Event Genera on func on computes Incomes using the following formula:
quan ty * face value * interest rate.

Quan ty Strategy Reconcilia on must also take the face value into account. This means
that the quan ty is computed using the following formula:

(actual weight – objec ve weight) * por olio reference market value / (face value
* price in reference currency)

The different behaviour in opera on:

Accrued interest flag = Yes Accrued interest flag = No

Quote Dirty quote Dirty quote

Price Clean price Dirty price

Quote / Face Value - AI Quote / Face Value

Gross Amount Clean Price * Face Value * Quan ty Dirty Price * Face Value *
Quan ty

Accrued Quan ty * Face Value * AI * #days / null

interests basis

Net Amount Gross Amount + Accrued Interests Gross Amount

The different behaviour in valua on:

Accrued interest flag = Yes Accrued interest flag = No

Accrued Quan ty * Face Value * AI * #days / basis null

interests

Ref (Instrument Price * Face value * Quan ty + Instrument Price * Face value *
Market Accrued Interest) * exchange rate Quan ty * exchange rate
Value

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Other Instruments
This category is used to store miscellaneous instruments that are either without value or do not share the characteris cs of the specific instruments described in this
product guide. The instruments can be purchased and sold, quoted (though not necessarily), and can have accrued interest but no income or redemp on events
(i.e., these events for this nature of instrument are ignored by the Journal and Event Genera on func ons). The Risk View depends on the Risk Nature.

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Forward Rate Agreements

A forward rate agreement (FRA) is one where a no onal borrower agrees with a no onal lender the rate of interest that will be applied to a no onal amount for
some period in the future, star ng on a specified date in the future, the so-called “effec ve date”. When the effec ve date arrives, the contractual rate of the FRA
will be compared to the current rate of a market interest reference rate, such as EURIBOR or LIBOR. No actual lending or borrowing will occur - all that happens is an
exchange of a cash amount, based on the difference between the actual market interest rate on the day and the rate agreed in the FRA. The buyer of an FRA is the
no onal borrower.

Instrument Data
An FRA is a generic instrument. In other words, you can use the same instrument for any contract on the reference interest rate. Dates are specified at the opera on
level.

The following a ributes are specific for an FRA:

A ribute Descrip on

Accrual Day count conven on for calcula ng the payoff amount.

Rule

Physical Yes - The instruments are always cash se led.

Delivery

Yield The curve on which the flows are discounted to calculate the theore cal price
Curve

Underlying Must reference an underlying instrument with a Rate nature (e.g., 3-month USD
Libor). Typically, the sub-nature of the underlying instrument is MM Rate.

Valua on Theore cal

Rule

Price FRA
Calcula on
Rule

Opera ons
The following sec ons describe how to enter transac ons in this instrument:

Entering into a Forward Rate Agreement

Expira on of the Contract

Entering into a Forward Rate Agreement

The opening of a posi on in a forward rate agreement (FRA) is done by using a Buy or Sell opera on.

A Buy opera on is used to describe the borrowing of the fixed rate defined in the opera on and the lending at the floa ng rate defined in the instrument.

The following data of the Buy opera on is mandatory:

A ribute Descrip on

Quan ty No onal amount for lending

Quote Contractually agreed lending interest rate

Price Calculated from the quote

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A ribute Descrip on

Trade Date Date on which the contract is opened

Value Date Effec ve date (i.e., the date on which the lending should start)

Reference Nature FRA Open

Expira on of the Contract

The contract is closed using a Buy or Sell opera on, with the opera on nature being the inverse of the opera on nature of the opening opera on.

A ribute Descrip on

Quan ty No onal amount for lending

Quote Observed lending interest rate at the closing of the contract

Price Calculated from the quote

Trade Date Date on which the contract is closed

Value Date Effec ve date (i.e., the date on which the lending should start)

Reference Nature FRA Close

Reference Opera on Code Code of the opening opera on.

Business Func ons

The following sec ons describe the business func ons of this instrument:

Valua on

Risk Posi ons

Journal

Analy cs

Valua on
The value of a forward rate agreement (FRA) depends on the Forward Accoun ng Flag applica on parameter FWD_ACC_FLAG. If the flag is set to 0 (False), the
posi on is valued as: quan ty * price. An offse ng cash posi on is valued. If the flag is set to 1 (True), the value of the posi on is computed as the difference
between the current price and the contractual price.

FRAs have an ini al cost of 0.

The value of an FRA is computed by first finding the forward/forward rate beginning on the se lement date. The curve used here is the one defined for the
underlying Rate instrument. Then, the future cash flows are actualised using the yield curve specified at the Instrument level or the default curve of the currency.

The pricing rou ne first finds the interpolated rates at se lement date (Value Date) and at final date (Expira on Date) according to the yield curve entered at the
instrument level, and then computes the discount factors.

The forward/forward rate is calculated and corresponds to the quote of the instrument.

The net present value corresponds to the net present value of the difference between the agreed fixed rate and the interpola on of the forward rate.

The market value of the posi on is the product of the no onal amount and the net present value.

Risk Posi ons

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A long FRA contract has the effect of fixing the interest rate of a loan in the future and can therefore be considered as a long-dated loan coupled with a short-dated
deposit.

The long-dated loan has the following characteris cs:

The short-dated deposit has the following characteris cs:

A ribute Descrip on

Instrument Cash account debited at Opening

Nature Discount instrument

Begin Date Opera on date of the FRA

End Date Value date of the FRA

Quan ty Quan ty

Valua on Rule Theore cal

Redemp on 100%

Price Computed from the yield curve

Journal
An FRA is redeemed (bought or sold) on the se lement date at the se lement price.

Analy cs
You can measure the sensi vity of the risk posi ons using the DURA() and MDURA() keywords (refer to the WealthSuite Front Office - Por olio Management -
Script Language Reference Guide for more informa on).

Example
For a 3 x 6 FRA, 3-month LIBOR (meaning in 3 months for 3 months), the instrument must be created as follows:

A ribute Value

Reference Currency USD

Price Calcula on Rule FRA

Valua on Rule Theore cal

Yield Curve USD-YC

Accrual Rule Actual/360

Underlying 3-month USD LIBOR

You must enter the data for opening a posi on at the opera on level: The Opera on Date is 15-06-2008, the Value Date is 15-09-2008 and the Expira on Date is
implied by the defini on of the 3-month LIBOR instrument, which is 15-12-2008.

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Forex Swaps
A forex swap (or foreign exchange swap or FX swap) is an agreement to enter simultaneously into a spot foreign exchange contract and an opposite forward foreign
exchange contract at predetermined exchange rates. The agreement is expressed in basis points that are added to the spot exchange rate. Economically, a Forex
swap is equivalent to borrowing in one currency and lending in another. The swap rate represents the interest rate differen al between the two currencies.

Instrument Data
It is important to understand the meaning of "Paid" and "Received" in this context. For a purchased Forex swap:

"Paid" refers to the currency that is paid at the end of the swap.

"Received" refers to the currency that is received at the end of the swap.

A ribute Descrip on

Instrument data

Paid Currency paid at the final date.

currency

Reference Currency received at the final date.

Received
Currency

Paid Leg Term structure used to discount the paid leg (if not specified, the default curve for
Yield the currency is used).
Curve

Yield Term structure used to discount the received leg (if not specified, the default curve
Curve for the currency is used).

Generic Select generic to be able to re-use the instrument. Begin Date and End Date of the
flag contract will then be set at the opera on level. For non-generic instruments, these
dates are defined at the instrument level.

Valua on The choices are:

Rule
Quoted: the price is found in the instrument price table.

Composite: the price is computed as the sum of the Net present values
of each leg, valued of their respec ve yield curves.

Theore cal: the price is computed as a pro rata of the original swap rate.

Price Basic points (in reference received currency).

Calcula on
Rule

Begin Date Date of the ini al exchange (non-generic instrument).

End Date Date of the final exchange (non-generic instrument.

Opera on

Open and Close

A Forex swap is bought or sold using "buy" or "sell" opera ons. In the following, the amounts and quan es are specified as if the contract is first purchased then
sold. You can, of course, sell the contract first and then repurchase it. Note that exchange rates are quoted as 1 paid at maturity currency = n received at maturity
currency.

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A ribute Descrip on

For the Open opera on:

Quote Set to the swap rate (i.e., the basis points to be added from the exchange rate to
obtain the forward exchange rate).

Price Equals Quote/10,000.

Quan ty Nominal amount (corresponds to the amount expressed in the reference received
currency).

Account Indicates the posi ve amount in the received side currency at the maturity of the
posi on. This amount is equal to the quan ty. In fact, this amount is translated into
a debit as it represents the currency paid spot.

Account 2 Indicates the nega ve amount in the paid currency at the maturity of the posi on.
This amount is equal to the quan ty in the reference currency converted by the
“spot exchange rate” and any F&Ts to be paid.

Reference Set to FX Swap Open.

Nature

For the Close opera on:

Quote Set to the swap rate (i.e., the basis points to be subtracted from the exchange rate
to obtain the forward exchange rate).

Price Set to 0.

Quan ty Nominal amount (the amount expressed in the received side currency).

Amounts Are computed as usual: (qty * price).

Account Indicates a posi ve amount in the received side currency equal to the quan ty.

Account 2 Indicates a nega ve amount in the paid side currency. This amount is equal to the
quan ty converted by the forward exchange rate (i.e., the spot exchange rate plus
the basis points less any F&Ts due).

Reference Set to FX Swap Close and enter the Code of the opening opera on.
Nature

The closing of a Forex swap posi on has the following results:

The posi on is closed.

Account 1 and Account 2 are debited / credited of their respec ve amounts.

An income balance posi on (paid or received according to the minus / plus sign) is generated that includes the basis
differen al; that is, the nominal amount * swap rate expressed in the instrument reference currency.

This implies that the interest rate basis is a ributed to a balance posi on expressed in the paid side currency.

Business Func ons

The following sec ons describe the business func ons of this instrument:

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Valua on

Risk Posi ons

Journal and Event Genera on

Sensi vity

Valua on
The posi on is valued according to the Valua on rule.

To compute the market value, the AA rou ne first computes spot and forward amounts based on the spot and forward rates (also shown on the interest rate Risk
View). The forward amounts are then discounted on their respec ve yield curve, and the discounted amounts are then converted into the currency of valua on and
ne ed.

Risk Posi ons

A Forex swap is equivalent to two back-to-back deposit and loan transac ons. Hence the risk posi ons are a long posi on in the received currency and a short
posi on in the paid currency. They have the following characteris cs:

A ribute Descrip on

Instrument Forex swap

Nature Discount

Begin Date Instrument’s Begin Date or opening opera on Value Date

End Date Instrument’s End Date or opening opera on Expira on Date

Valua on Rule Theore cal

Redemp on 100%

Price Computed from the yield curve

Journal and Event Genera on

In the Journal, the Forex swap is "closed" on the End Date.

Sensi vity
The sensi vity of the risk posi ons can be measured using the DURA() and MDURA() keywords. For more informa on, refer to the WealthSuite Front Office -
Por olio Management - Script Language Reference Guide.

Example
An investor buys a EUR/CHF Forex swap for 1 million EUR, se lement in 3 months. The spot exchange rate is 1.7096 and the swap rate is 0.0145 EUR (145 basis
points). The instrument currency is EUR (the currency that will be received on se lement is EUR) and the opera on currency is CHF. The exchange rate is thus quoted
as 1 CHF = n EUR. Therefore, the forward rate is 1 CHF = (1/1.7096) + 0.0145 = 0.599432 EUR (equivalent to 1 EUR = 1.668246 CHF).

The opening opera on is entered as follows:

A ribute Value

Opera on Nature Buy

Quan ty 1,000,000 (EUR)

Quote 145 (EUR)

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A ribute Value

Price 0.0145

Amount 0

Account EUR

Account net amount + 1,000,000 EUR

Account 2 CHF

Account 2 net amount - 1,709,600 CHF

Exchange rate Opera on / 1.7096

Account 2

Spot Exchange Rate 0.584932 (=1/1.7096)

Reference Nature Fx Swap Open

When the posi on is closed, a sell opera on must be entered as follows:

A ribute Value

Opera on Nature Sell

Quan ty 1,000,000

Quote 0

Price 0

Amount 0

Account EUR

Account net amount + 1,000,000 EUR

Account 2 CHF

Account 2 net amount - 1,668,246 CHF

Exchange rate Opera on / 1.6682

Account 2

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A ribute Value

Reference Nature Fx Swap Close

Reference Opera on Code Code of the opening opera on

Income balance posi on is 41,354 CHF.

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Exo c Op ons
There are specific instrument data for op ons. The instrument must be created with a nature set to Exo c Op on. In the instrument table, an important data field is
the sub-nature, because it determines the calcula on of the theore cal price and the treatment of the instrument other business func ons (e.g., the journal).

The types of op ons described in this sec on are:

Chooser

Rate Look-Back and Strike Look-Back

Average Rate Asian and Average Strike Asian

Barrier

Forward Start

One-Touch Digital

Binary

Con ngent Premium

Compound

Double Knock-out

Double Knock-in

Knock-In Knock-out

Op ons on Two Assets

Chooser
A chooser op on is also called a Call-or-Put op on or As-You-Like op on: The buyer can convert from one style of op on to a different style of op on over a pre-set
period of me. During this ini al me period, the As-You-Like behaves like a straddle (a Call and a Put op on together, at the same strike) so that as the market goes
up, it acts like a Call, and as the market goes down, it acts like a Put. By the end of this ini al pre-set me period, the holder chooses whether the op on should then
be converted to either a Call or a Put for the remaining life of the op on.

Instrument Data

A ribute Descrip on

Sub-nature of the Chooser

instrument

Price Calcula on Usually Quote or Quote / 100

Rule

Valua on Rule The choices are:

Quoted (when prices are provided in the instrument price table)

Theore cal (when to be valuated with a theore cal price)

Yield Curve On which the discoun ng rates are found

Premium Payment Usually up-front

Rule

Contract Size If the quan ty is taken into account in the opera on net amount and
underlying exposure, it is inpu ed here.

Begin Date The issue or ini al start date of the op on.

End Date Final expira on date of the op on.

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Term Event Data

A ribute Descrip on

Validity Date at which the event is known, usually the same as the Begin Date of the
date instrument

Underlying The instrument underlying the op on, created under its own nature

Underlying If the quan ty is not taken into account in the opera on net amount but in the
quan ty underlying exposure, it is inpu ed here instead of the contract size in the
instrument

Strike price Or exercise price

and its
currency

Op on Input on fix date; before that date, it is unknown.

class

Op on European or American, this is known from the Begin Date.

style

Physical Indicates whether the underlying is physically delivered, or the op on posi on is

flag cash se led. Physical delivery is allowed in this case since the Payoff nature is a
delivery Vanilla func on.

Premium Same as instrument level.

payment
rule

Payoff Indicates the payoff of the op on. Permi ed values are:

nature
None

Vanilla payoff: the payoff is equal to the intrinsic value of the op on

Fix date The date when the decision must be made about whether the op on is a call or a
put. This field is mandatory.

Valua on
When valuing the op on before the Fix Date, the exo c features (i.e., the class of the op on is not yet known) are taken into
account.

A er the Fix Date, the op on is valued as a standard op on according to the specific class. If the class is s ll not specified, it
is deemed to be a call. This implies that the op on is valued as an exo c un l Fix Date included.

Vola lity is entered in the Chrono sub-table of the exo c op on or in the Chrono sub-table of the underlying instrument.
Depending on one parameter of the pricing keyword, one or the other will be used.

Example: Chooser Equity Op on

The current price of the underlying stock is 100 USD, the strike price is 100 USD, the risk-free rate is 10% (derived from the associated yield curve) and the vola lity
of the underlying stock is 25%. The European op on is issued on 31/01/2000 and expires in 6 month. The choice date is 31/03/2000, which means that on
01/04/2000 the op on loses its exo c features, and the op on class is definitely set.

The op on premium is 11.82 USD as of 31/01/2000.

Rate Look-Back and Strike Look-Back

Rate Look-back: A Rate Look-back op on is an op on with a payoff that is calculated using the highest intrinsic value of the
underlying security or index over the life of the op on. For a Look-back Call, this would mean the highest price is used for

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calcula ng the Call payoff, whereas for a Look-back Put, the lowest market price is used for this calcula on. The holder will
receive the maximum possible payoff, regardless of the value of the underlying security on maturity.

Strike Look-back: A Strike Look-back op on is an op on with a payoff that is calculated using the highest intrinsic value of
the underlying security or index over the life of the op on. For a Look-back Call, this would mean the lowest strike price is
used for calcula ng the Call payoff, whereas for a Look-back Put, the highest strike price is used for this calcula on. The
holder will receive the maximum possible payoff, regardless of the value of the strike price on the issue of the op on.

Instrument Data

A ribute Descrip on

Sub-nature of the Rate Look-back or Strike Look-back

instrument

Price Calcula on Usually Quote or Quote / 100

Rule

Valua on Rule The choices are:

Quoted (when prices are provided in the instrument price table)

Theore cal (when to be valuated with a theore cal price)

Yield Curve On which the discoun ng rates are found

Premium Payment Usually up-front

Rule

Contract Size If the quan ty is taken into account in the opera on net amount and
underlying exposure, it is inpu ed here.

Begin Date The issue or ini al start date of the op on

End Date Final expira on date of the op on

Term Event Data

A ribute Descrip on

Underlying The instrument underlying the op on, created under its own nature.

Underlying If the quan ty is not taken into account in the opera on net amount but in the
quan ty underlying exposure, it is inpu ed here instead of the contract size in the
instrument.

Strike Mandatory for Rate Look-back but le blank for Strike Look-back given it is the
price and undefined variable.
its
currency

Op on Call or Put, this is known from the issue date of the instrument; it determines if the
class “current extreme” input in the chrono sub-table should be considered as a
minimum or a maximum.

Op on European or American, this is known from the issue date.

style

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A ribute Descrip on

Physical Indicates whether the underlying is physically delivered, or the op on posi on is

flag cash se led. Physical delivery is not allowed in case of Rate Look-back but it is in
delivery the case of Strike Look-back.

Premium Same as instrument level.

payment
rule

Payoff Indicates the payoff of the op on. Permi ed values are:

nature
None

Vanilla payoff only for Rate Look-back

End Look- Indicates the end date of the Look-back period.

back
period

Chrono Data
Look-back current extreme contains the current extreme. When the sub-nature is Rate Look-back, it represents the rate current extreme (or underlying current
extreme price); when it is Strike Look-back, it represents the strike current extreme.

Valua on
Such op ons have an unknown payoff un l a er the end of the Look-back period. Nevertheless, pricing rou ne needs the input in Chrono” of a “Look-back current
extreme” at the date of valua on. The following are possible payoffs:

Type Op on type Payoff

Strike Look-back Call Max[S(T) – Min{S(t)}, 0]

Strike Look-back Put Max[Max{S(t)} – S(T), 0]

Rate Look-back Call Max[Max{S(t)} – X, 0]

Rate Look-back Put Max[X – Min{S(t)}, 0]

Where

X is the strike price

S(t) is the underlying price during the life of the op on

S(T) is the underlying price at maturity

Journal and Event Genera on

Computa on of the payoff depends on the Look-back extreme but the condi on of computa on depends on the underlying price. In other words, should a Call
posi on be ITM depending on the underlying price, then the payoff is computed on the basis of the Look-back extreme.

For Rate Look-back, physical delivery is not possible; the opera ons generated are based on cash se lement only.

Condi on Call Put

Underlying price > Sell/Buy op on @ (Current Sell/Buy op on at 0

Strike price extreme – Strike price )

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Condi on Call Put

Underlying price = Sell/Buy op on at 0 Sell/Buy op on at 0

Strike price

Underlying price < Sell/Buy op on at 0 Sell/Buy op on @ ( Strike price –

Strike price Current extreme)

For Strike Look-back, physical delivery is possible.

Condi on Call Call (physical) Put Put (physical)

Underlying Sell/Buy op on @ Sell/Buy Sell/Buy op on at 0 Sell/Buy op on

price > (Underlying Price – op on at 0 at 0
Strike price Current extreme)
Buy/Sell
Underlying at
Current
extreme

Underlying Sell/Buy op on at 0 Sell/Buy Sell/Buy op on at 0 Sell/Buy op on

price = op on at 0 at 0
Strike price

Underlying Sell/Buy op on at 0 Sell/Buy Sell/Buy op on @ Sell/Buy op on

price < op on at 0 (Current extreme – at 0
Strike price Underlying Price )
Buy/Sell
Underlying at
Current
extreme

Example: Rate Look-Back Equity Call

The current price of the underlying stock is 100 USD, the strike price is 100 USD, the risk-free rate is 6% (derived from the associated yield curve) and the vola lity of
the underlying stock is 25%. The American op on is issued on 31/01/2000 and expires in 6 month. The Look-back period ends on the op on maturity date. On
31/01/2000, the “Look-back current extreme” input in the chrono sub-table is 100 USD.

The op on premium is 23.95 USD, as of 31/01/2000.

Average Rate Asian and Average Strike Asian

Average Rate Asian: An Average Rate Op on, or an Asian Op on, is an op on with a se lement that is based on the
difference between a given strike and the average prices of the underlying on selected dates. These dates are pre-
determined over the life of the op on; chosen as a series of sequen al days beginning on a specific date and ending at
expira on, or chosen at designated dates during the op on period. The most popular averaging points are the closing prices
on pre-determined dates such as the end of the month. This method also reduces the op on’s exposure to the price at
expira on by taking the average price over the selected period.

At maturity, the investor will receive the difference between the strike price and the average price of the underlying as defined in the op on contract agreement.

Average Strike Asian: An Average Strike Op on is an op on with a se lement that is based on the difference between an
averaged strike and the final price of the underlying security. The dates of averaging are pre-determined over the life of the
op on.

At maturity, the investor will receive the difference between the average strike price and the price of the underlying at expira on.

Instrument Data

A ribute Descrip on

Sub-nature of the Average Rate Asian or Average Strike Asian

instrument

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A ribute Descrip on

Price calcula on Usually quote or quote/100

rule

Valua on Rule The choices are:

Quoted (when prices are provided in the instrument price table)

Theore cal (when to be valuated with a theore cal price)

Yield Curve On which the discoun ng rates are found

Premium Payment Usually up-front

Rule

Contract Size If the quan ty is taken into account in the opera on net amount and
underlying exposure, it is inpu ed here.

Begin Date The issue or ini al start date of the op on

End Date Final expira on date of the op on

Term Event Data

A ribute Descrip on

Underlying The instrument underlying the op on, created under its own nature.

Underlying If the quan ty is not taken into account in the opera on net amount but in the
quan ty underlying exposure, it is inpu ed here instead of the contract size in the
instrument.

Strike Mandatory for Average Rate Asian but le blank for Average Strike Asian given it is
price and the undefined variable.
its
currency

Op on Call or Put, this is known from the issue date of the instrument. It determines
class whether the “Current extreme” input in the chrono sub-table should be considered
as a minimum or a maximum.

Op on European or American; this is known from the issue date.

style

Premium Same as instrument level.

payment
rule

Payoff Indicates the payoff of the op on. Permi ed values are:

nature
None

Vanilla payoff only for Average Rate

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A ribute Descrip on

Fix date The last averaging date, mandatory.

Averaging Number of averaging days. Consequently, discrete me monitoring of the average

number is allowed. Only used for average-rate op ons. Averaging occurs between the first
averaging date and the last averaging date.

Physical Always set to No for Average Rate Asian because no delivery is possible. Average
delivery Strike Asian can be cash se led or have delivery features.
flag

Chrono Data
Asian current average is the current average amount. Up un l the Begin Date, it is 0.0, and in the period, it is the current average. This is not mandatory; if nothing is
inpu ed, it is considered as zero.

Valua on
Asian op ons have an unknown payoff un l a er the end of the averaging period and at expira on. The possible payoffs are:

Type Op on type Payoff

Average rate Call Max [ Avg(Si) – X, 0 ]

Average rate Put Max [ X – Avg(Si), 0 ]

Average Strike Call Max [ S(T) – Avg(Si), 0 ]

Average Strike Put Max [ Avg(Si) – S(T), 0 ]

Where

Si is the underlying price

X is the strike

S(T) is the strike price at maturity.

In a Black model type of environment, Michael Curran’s approach for average rate op ons and Bouaziz [Link]. for average strike op ons have been used. The former
allows discrete me sampling and the la er approach assumes con nuous averaging.

Journal and Event Genera on

The payoff of the op on is unknown, since the relevant price of the underlying or the relevant strike price is unknown.

Average Rate Asian: The payoff depends on the mean price of the underlying during the life of the op on. The mean price is stored as “Asian Current Average” in the
chrono sub-table of the op on. Note that physical delivery is not possible.

Condi on Call Put

Underlying price > Sell/Buy op on @ (Asian current Sell/Buy op on at 0

Strike price average – Strike price )

Underlying price = Sell/Buy op on at 0 Sell/Buy op on at 0

Strike price

Underlying price < Sell/Buy op on at 0 Sell/Buy op on @ ( Strike price –

Strike price Asian current average)

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Average Strike Asian: The payoff depends on the mean price of the underlying during the life of the op on. The mean price that will represent the strike price is
stored as “Asian Current Average” in the chrono sub-table of the op on. Note that physical delivery is possible.

Condi on Call Call (physical) Put Put (physical)

Underlying Sell/Buy op on @ Sell/Buy Sell/Buy op on at 0 Sell/Buy op on

price > (Underlying Price – op on at 0 at 0
Strike Asian current avg )
price Buy/Sell
Underlying at
Asian current
avg

Underlying Sell/Buy op on at 0 Sell/Buy Sell/Buy op on at 0 Sell/Buy op on

price = op on at 0 at 0
Strike
price

Underlying Sell/Buy op on at 0 Sell/Buy Sell/Buy op on @ Sell/Buy op on

price < op on at 0 (Asian current avg – at 0
Strike Underlying Price )
price Buy/Sell
Underlying at
Asian current
avg

Example: Average Equity Put

The current price of the underlying stock is USD 100, the strike price is USD 100, the risk-free rate is 10% (derived from the associated yield curve), and the vola lity
of the underlying stock is 25%. The average op on is a con nuously averaged 6-month American style Put op on (i.e., the in-the-money payoff on the maturity date
is the strike minus the arithme cally averaged rate) on an equity underlying. The “Asian current average” input in the chrono sub-table is USD 100.

The op on premium is 4.34 USD.

Barrier
Barrier op on is a family of path dependent op ons, whose payoff pa ern and survival to the expira on date depend not only on the final price of the underlying
security but also on whether or not the underlying security sells at, or goes through, a predetermined barrier (in-strike, out-strike) at any point during the life of the
op on.

Barrier op ons are categorised into four sectors:

those that cease to exist if the market goes up (up-and-out)

those that cease to exist if the market goes down (down-and-out)

those that exist only if the market goes up (up-and-in)

those that exist only if the market goes down (down-and-in).

Barrier op ons may be either Calls or Puts; hence eight combina ons of barriers are available.

Instrument Data

A ribute Descrip on

Sub-nature of the Barrier

instrument

Price Calcula on Usually Quote or Quote / 100

Rule

Valua on Rule The choices are:

Quoted (when prices are provided in the instrument price table)

Theore cal (when to be valuated with a theore cal price)

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A ribute Descrip on

Yield Curve On which the rates are found

Premium Payment Usually up-front

Rule

Contract Size If the quan ty is taken into account in the opera on net amount and
underlying exposure, it is input here

Begin Date The issue or ini al start date of the op on

End Date Final expira on date of the op on

Term Event Data

A ribute Descrip on

Barrier Indicates whether it is an up-and-in, up-and-out, down-and-in, or down-and-out

nature barrier op on.

Physical Is ac ve when the barrier nature is up-and-in or down-and-in, it is not relevant for
delivery OUT op ons. Furthermore, physical delivery is not allowed when the Payoff nature
flag is Binary or Asset-on; it is possible only with a Payoff nature equal to Vanilla or Gap
(see informa on about Payoff nature below).

Barrier Defines the barrier at the upper or lower level.

Rebate Defines the rebate being paid if Knock-outs are knocked out or the rebate being
payoff paid for Knock-ins expires without breaching the barrier. For IN op ons, the rebate
is paid at expiry; for OUT op ons the rebate is paid when the barrier is breached (at
hit) or at expiry depending on the rebate at hit flag.

Rebate at Is True if the rebate is received when the barrier is hit, and False if the rebate is
hit flag received at expiry. For IN op ons, the rebate is paid at expiry only; for OUT op ons,
the rebate can be paid at hit or at expiry.

Season Indicates at which date the barrier was crossed. If this date is less than the
date valua on date, the op on is deemed to be knocked in or knocked out, has become
effec ve, or has disappeared.

Payoff Indicates the payoff of the op on. Permi ed values are:

nature
Binary payoff: the payoff is equal to the “gap” if the underlying price is
superior or equal to the strike

Vanilla payoff: the payoff is equal to the intrinsic value of the op on

Asset on payoff: the payoff is equal to the “scale factor” mes the
underlying price, if the underlying price is superior or equal to the strike;
it indicates an asset-or-nothing op on.

Gap payoff: the payoff is equal to underlying price minus strike minus
“gap”, if the underlying price is superior or equal to the strike.

Gap Amount to be used in compu ng the payoff.

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A ribute Descrip on

Scale Used in the case of asset-on-touch op ons.

factor

Frequency Describes, for discretely monitored barrier op ons, the period between looks. For a
and con nuously monitored barrier, these fields should be le as <None>.
frequency
unit

Valua on
When valuing the op on before the season date (date when the barrier was hit), the exo c features are taken into account.

Once the season date is filled, the op on is valued as the NPV of the eventual rebate.

The following is the descrip on of the payoff of a call op on expiring in the money:

Payoff nature Call Payoff

Binary Gap

Vanilla Underlying price - Strike price

Asset on Scale factor * Underlying price

Gap Underlying price - Strike price – Gap

Journal and Event Genera on

When the barrier has been breached on season date and the reference date of the business func on is posterior, IN barrier op ons are treated like standard op ons
(buy/sell opera on on expira on date). OUT barrier op ons produce buy/sell opera ons at the rebate payoff on the season date (if Rebate at hit flag is Yes) or on
expira on date (if Rebate at hit flag is No).

When the reference date is anterior (or season date is blank), the same ra onale is applied depending on the price of the underlying rela ve to the barrier.

Example: Up-and-Out Equity call

The current price of the underlying stock is USD 100, the strike price is USD 100, the risk-free rate is 10% (derived from the associated yield curve) and the vola lity
of the stock is 25%. The American op on is issued on 31/01/2000 and expires in 6 month, 31/07/2000. The barrier is placed at 140.

The op on premium is 6.5477 USD.

Forward Start
The forward start op on (or deferred strike op on or delayed start op on) allows the holder to defer the se ng of the strike price un l some future me of the
holder’s choice, up to an agreed deadline. At the point when the buyer so elects, the strike price will be fixed in rela on to the then prevailing spot price according to
a formula previously agreed as part of the terms of the op on.

Instrument Data

A ribute Descrip on

Sub-nature of the Forward start

instrument

Price calcula on Usually quote or quote/100

rule

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A ribute Descrip on

Valua on Rule The choices are:

Quoted (when prices are provided in the instrument price table)

Theore cal (when to be valuated with a theore cal price)

Yield Curve On which the rates are found

Premium Payment Usually up-front

Rule

Contract Size If the quan ty is to be taken into account in the opera on net amount and
underlying exposure, it is inpu ed here

Begin Date The issue or ini al start date of the op on

End Date Final expira on date of the op on

Last Trade Date

Term Event Data

A ribute Descrip on

Underlying The instrument underlying the op on, created under its own nature

Underlying If the quan ty is not taken into account in the opera on net amount but in the
quan ty underlying exposure, it is inpu ed here, instead of the contract size in the
instrument.

Strike price Le blank because it is the undefined variable un l the fix date

and its
currency

Scale factor The factor on the spot rate at the strike fixing date (also called alpha)

Fix date The date when the strike level is set

Op on class Call or Put

Op on style European or American; this is known from the issue date of the instrument

Physical Cash se lement or physical delivery of the underlying

delivery flag

Premium Same as instrument level

payment
rule

Payoff None (not Vanilla since a Vanilla payoff needs a strike input)
nature

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Valua on
When valuing the op on before the fix date, the exo c features are taken into account.

A er the fix date, the op on is valued as a standard op on according to the strike price fixed.

Example: Deferred-Strike Equity Call Op on

The underlying stock is currently trading at 130 USD. On 31/01/2000, an investor wants to buy a 6-month deferred start Call op on on the stock whose strike rate
will be set in 2 months. The current con nuously compounded risk-free rate of interest in the USD is 10%. Using a vola lity of 25%, what is the value of this
European-style op on?

The op on premium is 8.80 USD, as of 31/01/2000.

One-Touch Digital
A One-Touch op on, similarly called an Exploding op on, is a European-style Call spread with an early exercise price trigger a ached. This price trigger terminates
the contract and provides for se lement at the maximum value of the op on if the underlying security touches or goes through the outstrike at any me during the
life of the contract. If this trigger does not terminate the op on sooner, automa c European-style exercise occurs at expira on.

If the spot price touches or goes through the outstrike price at any me before maturity, the op on automa cally expires and the holder receives the difference
between the outstrike and the strike, mul plied by the face amount.

If the outstrike is never hit, then at expiry the op on payoff will be similar to a European-style op on payoff.

Instrument Data

A ribute Descrip on

Sub-nature of the One touch digital

instrument

Price calcula on Usually quote or quote/100.

rule

Valua on Rule The choices are:

Quoted (when prices are provided in the instrument price table)

Theore cal (when to be valuated with a theore cal price)

Yield Curve On which the discoun ng rates are found

Premium Payment Usually up-front

Rule

Contract Size If the quan ty is taken into account in the opera on net amount and
underlying exposure, it is inpu ed here

Begin Date The issue or ini al start date of the op on

End Date Final expira on date of the op on

Last Trade Date

Term Event Data

A ribute Descrip on

Barrier Indicates whether it is an up-and-in, up-and-out, down-and-in, or down-and-out

nature barrier op on

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A ribute Descrip on

Op on Always European
style

Physical Always set to No

delivery
flag

Barrier The cri cal level that defines whether payoff will occur.

Rebate Is True if the rebate is received when the barrier is hit, and False if the rebate is
at hit received at expiry. For IN op ons, the rebate is paid at expiry only; for OUT op ons,
flag the rebate can be paid at hit or at expiry.

Payoff Indicates the payoff of the op on. The only permi ed value is Binary.
nature

Gap Amount to be used in compu ng the binary payoff

Season Date at which the barrier is touched

date

Valua on
Valua on of One-touch digital op ons is based on me-dependent barriers. One major assump on is that the barriers are flat.

Observing whether the barrier has been breached or not is con nuous during the life of the op on. Knock-in digital op ons may pay at hit or at expiry, whereas
Knock-out op ons pay only at expiry.

Journal first checks whether season date in term event sub-table has been filled. If it has, the op on posi on is reversed on season date or maturity date (depending
on the rebate at hit flag). If season date is not filled, the posi on is compared to the value of the underlying instrument to work out what could happen to the
posi on.

Example: Up-and-Out equity Call

The current price of the underlying stock is USD 100, the strike price is USD 100, the risk-free rate is 10% (derived from the associated yield curve) and the vola lity
of the stock is 25%. The European op on is issued on 31/01/2000 and expires in 6 month, 31/07/2000. The barrier is placed at 140.

The op on premium is 0.86 USD, as of 31/01/2000.

Binary
Binary op ons are op ons with discon nuous payoffs. A typical example of a binary op on is all or nothing. It will provide the op on buyer a payoff of “all” or
“nothing”, depending on the value of the op on at expiry. The “all” part can be the no onal amount of the op on or any other amount of cash unrelated to the
intrinsic value of the op on. In other words, the op on pays out a set amount if the underlying asset is above or below a certain specified level at the op on’s
maturity date. How far the underlying asset price is above or below the strike price is not important since the payoff will be “all” or “nothing” at the maturity date.

Instrument Data

A ribute Descrip on

Sub-nature of the Binary

instrument

Price calcula on Usually quote or quote/100

rule

Valua on rule Quoted (when prices are provided in the instrument price table)

Theore cal (when to be valuated with a theore cal price)

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A ribute Descrip on

Yield curve On which the discoun ng rates are found

Premium payment Usually up-front

rule

Contract size If the quan ty is taken into account in the opera on net amount and
underlying exposure, it is inpu ed here.

Begin date The issue or ini al start date of the op on

End date Final expira on date of the op on

Term Event Data

A ribute Descrip on

Physical delivery flag Always set to No

Payoff nature Indicates the payoff of the op on. Permi ed values are:

Binary payoff: if it is unrelated to the value of the op on

Vanilla payoff

Asset on payoff

Gap payoff

Gap Amount to be used in compu ng the payoff

Scale factor Used in the case of asset-on-touch op ons

Valua on
The following is the descrip on of the payoff of a Call op on expiring in the money:

Payoff nature Call Payoff

Binary Gap

Vanilla Underlying price – Strike price

Asset on Scale factor * Underlying price

Gap Underlying price - Strike price – Gap

As the payoff structure should always be digital (i.e., a fixed amount is paid), the pay-off nature should be set to Binary.

Example: Cash-or-Nothing Equity Call

The current price of the underlying stock is 130 USD, the strike price is 90 USD, the risk-free rate is 6.188% (derived from the associated yield curve) and the vola lity
of the underlying stock is 25%. The op on is issued on 31/01/2000 and expires in 6 month. On the 31/07/2000, if the underlying price is greater than 90, the op on

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payoff will be equal to 30 USD; if the underlying price is lower than 90, the payoff will be equal to 0 USD. The op on premium represents the probability of either
payoff.

The op on premium is 28.65 USD, as of 31/01/2000.

Con ngent Premium

A Con ngent Premium op on is also called a Capitalised op on, Cash/Collect on delivery op on (COD), Pay Later, or Pay on Exercise op on. It is a contract for which
the buyer pays no premium up-front but agrees to pay a predetermined premium if the op on has any value at the expira on. The buyer has the obliga on to
exercise his op on when it is in the money and to pay the premium. The exercise takes place regardless of the importance of the difference between the underlying
asset price and the strike price (i.e., the amount by which the op on is in-the-money).

The premium for a con ngent premium op on will exceed that of an ordinary op on but the premium will be paid only if the op on is in the money at expira on.

Instrument Data

A ribute Descrip on

Sub-nature of the Con ngent Premium

instrument

Price calcula on Usually quote or quote/100

rule

Valua on rule Quoted (when prices are provided in the instrument price table)

Theore cal (when to be valuated with a theore cal price)

Yield curve On which the discoun ng rates are found

Premium payment Usually up-front

rule

Contract size If the quan ty is taken into account in the opera on net amount and
underlying exposure, it is inpu ed here

Begin date The issue or ini al start date of the op on

End date Final expira on date of the op on

Last trade date

Term Event Data

A ribute Descrip on

Underlying The instrument underlying the op on, created under its own nature.

Underlying If the quan ty is not taken into account in the opera on net amount but in the
quan ty underlying exposure, it is inpu ed here, instead of the contract size in the
instrument

Strike price Le blank since it is the undefined variable, un l fix date

and its
currency

Op on class Call or Put

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A ribute Descrip on

Op on style European or American; this is known from the issue date of the instrument

Physical Cash se lement or not

delivery flag

Premium At expira on only

payment
rule

Payoff Indicates the payoff of the op on. Permi ed values are:

nature
None

Vanilla payoff

Gap Amount to be used in compu ng the binary payoff

Con ngent The premium that is paid if the op on expiring in the money; in other words, the
premium premium is con ngent upon the op on expiring in the money

Valua on
The payoff of such op on takes into account the con ngent premium.

For a Call, it is Max [ S(T) – X – P, 0 ]

For a Put, it is Max [X – S(T) – P, 0 ]

Journal and Event Genera on

The func on is similar to that of a plain Vanilla instrument, except the con ngent premium reduces the payoff (in case of cash se lement) or increases the cost price
(in case of physical delivery).

Example: Pay Later Equity Call

The underlying stock is currently trading at 100 USD. An investor wants to buy a 6-month pay later call op on on the stock struck at 100 USD. Should the op on
expire in the money, the premium paid will be 4 USD. The current con nuously compounded risk-free rate of interest in the USD is 10%. Using a vola lity of 25%,
what is the value of this European-style op on.

The op on premium is 8.32 USD, as of 31/01/2000.

Compound
A Compound op on is an op on on an op on. The holder of the Compound op on has the right to purchase (or sell) another op on on a pre-set date at a pre-set
premium called the premium strike op on.

Both a compound Call and Put op ons are in the money if the premium strike is less than the valua on of the underlying op on on the compound op on’s exercise
date. On this date, the holder may choose to allow the compound op on to expire unexercised if the holder does not find the op on to be necessary or favourable.
In this case, the holder would not pay the remaining premium designated by the strike premium. If the holder decides to exercise the op on, the holder pays the
strike premium and the acquired op on will perform as a standard op on throughout its regular life.

Instrument Data

A ribute Descrip on

Sub-nature of the Compound

instrument

Price calcula on Usually quote or quote/100.

rule

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A ribute Descrip on

Valua on rule Quoted (when prices are provided in the instrument price table)

Theore cal (when to be valuated with a theore cal price)

Yield curve On which the discoun ng rates are found

Premium payment Usually up-front

rule

Contract size If the quan ty is taken into account in the opera on net amount and
underlying exposure, it is inpu ed here

Begin date The issue or ini al start date of the op on

End date Final expira on date of the op on

Last trade date

Term Event Data

A ribute Descrip on

Underlying Defines the data for these “op ons on op ons”. This is a case of an op on on an
instrument underlying op on on an underlying instrument. Note that the underlying op on
must be a plain Vanilla op on and expire at least at a later me.

Strike Of the op on on the price of the underlying op on

price and
its
currency

Op on Call or Put
class

Op on European or American; this is known from the issue date of the instrument
style

Physical Cash se lement or physical delivery of the underlying op on

delivery
flag

Premium Same as the one at the instrument level

payment
rule

Payoff Indicates the payoff of the op on. Permi ed values are:

nature
None

Vanilla payoff

Valua on
Compound op ons have two strikes and two exercise dates. AA handles the valua on of such op ons with different structures of maturity. The Compound op on is
called the outer op on and the underlying op on is called the inner.

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Example: Compound Equity Call

On 31/01/2000, a stock is trading at 1,000 USD with vola lity at 25%; a plain Vanilla call op on on the stock is trading at 305 USD with an implied vola lity at 25%,
strike at 800 USD, and maturity date is 31/01/2001. A compound Call on the call op on has a strike price of 200 USD and its maturity date is 31/07/2000. The risk-
free rate is 10% (derived from the associated yield curve).

The op on premium is 0.0102 USD, as of 31/01/2000.

Double Knock-out
The op on knocks out if one of the barriers is hit during the life of the op on. Both for the upper and lower barriers, a rebate may be defined. For each rebate, one
can specify if it is paid at hit or at expiry. If the op on is not knocked out, the payoff is then defined.

Instrument Data

A ribute Descrip on

Sub-nature of the Double Knock-out

instrument

Price calcula on Usually the quote or quote/100

rule

Valua on rule Theore cal for AA processing

Yield curve On which the discoun ng rates are found

Premium payment Usually up-front

rule

Contract size If the quan ty is taken into account in the opera on net amount and
underlying exposure, it is inpu ed here

Begin date The issue or ini al start date of the op on

End date Final expira on date of the op on

Last trade date

Term Event Data

A ribute Descrip on

Lower Level of the lower barrier

Barrier

Lower Defines the rebate being paid if the op on is knocked out by hi ng the lower
Rebate barrier. The rebate is paid when the barrier is breached (at hit) or at expiry
depending on rebate at hit flag.

Rebate at Is True if the rebate is received when the lower barrier is hit, and False if the
hit flag rebate is received at expiry.

Hit date Input when the lower barrier is hit

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A ribute Descrip on

Upper Level of the upper barrier

barrier

Upper Defines the rebate being paid if the op on is knocked out by hi ng the upper
Rebate barrier. The rebate is paid when the barrier is breached (at hit) or at expiry
depending on upper rebate at hit flag.

Upper Is True if the rebate is received when the upper barrier is hit, and False if the
rebate at rebate is received at expiry
hit flag

Hit date Input when the upper barrier is hit.

Payoff Indicates the payoff of the op on. Permi ed values are:

nature
Binary payoff

Vanilla payoff

Asset on payoff

Gap payoff

Gap Amount to be used in compu ng the payoff. See explana on below.

Scale factor Used in the case of asset-on-touch op ons

Frequency Describes the period between searches for discretely monitored Double Knock-out
and op ons. For con nuously monitored Knock-out op ons, these fields should be le
frequency as <none>.
unit

Valua on
The following is the descrip on of the payoff of a Call op on expiring in the money:

Payoff nature Call Payoff

Binary Gap

Vanilla Underlying price – Strike price

Asset on Scale factor * Underlying price

Gap Underlying price - Strike price - Gap

Double Knock-out op ons are analysed as in Broadie, Glasserman & Kou (1995).

Double Knock-out op ons lose their exo c features during their life when knocked out. Their NPV is then determined by the NPV of the upper or lower rebate,
whether the upper or lower rebate has been hit. When valuing a Knock-out, season and fix dates are first checked. If one of them is specified, NPV of rebate or upper
rebate is computed considering the flow on season/fix date, or on end date depending on the values of rebate/upper rebate at hit flags.

Journal and Event Genera on

The opera ons generated depend on whether one of the hit dates has been filled (i.e., one of the barrier has been hit). When one of them is filled (both is
impossible), the related rebate is selected, if any. Otherwise a standard func on is run based on the payoff structure.

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Example: Double Knock-out Call on Equity

The current price of the underlying stock is 100, the strike price is 100, the risk-free rate is 10% and the vola lity of the stock is 25%. The op on is issued on
31/01/2000 and expires in 6 month. The upper barrier is placed at 140 and the lower barrier is placed at 95. The number of me steps used is 50 (according to the
system parameter BIN_NUM_OF_PERIODS). In this case, should the underlying price touch any barrier during the life of the op on, it will expire worthless. There
is no rebate should one of the barriers be hit.

The op on premium is 3.28 USD.

Double Knock-in
A class of double barrier op ons that includes two Knock-in barriers.

It is a European plain Vanilla op on with two American barriers; one barrier as regular (it can be hit when the op on moves out of the money) and one as a reverse
barrier (it can be hit when the op on moves into the money).

If there is no barrier hit, there is no payoff.

If at least one barrier is hit, then the payoff is the underlying Vanilla op on.

Instrument Data

A ribute Descrip on

Sub-nature of the Double Knock-in

instrument

Price calcula on Usually the quote or quote/100

rule

Valua on rule Quoted

Front Office – PM does not support theore cal pricing for this class.

Yield curve On which the discoun ng rates are found

Premium payment Usually up-front

rule

Contract size If the quan ty is taken into account in the opera on net amount and
underlying exposure, it is inpu ed here

Begin date The issue or ini al start date of the op on

End date Final expira on date of the op on

Last trade date

Term Event Data

A ribute Descrip on

Validity date Date at which the event is known, usually the same as the Begin Date of the
instrument.

Underlying The instrument underlying the op on, created under its own nature.

Underlying If the quan ty is not taken into account in the opera on net amount but in the
quan ty underlying exposure, it is inpu ed here instead of the contract size in the
instrument.

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A ribute Descrip on

Strike price Or exercise price

and its
currency

Op on class Call or Put

Op on style European

Physical flag Indicates whether the underlying is physically delivered, or the op on posi on is
delivery cash se led. Physical delivery is allowed in this case since the Payoff nature is a
Vanilla func on.

Premium Same as instrument level.

payment
rule

Payoff Indicates the payoff of the op on. Permi ed values are:

nature
None

Vanilla payoff: the payoff is equal to the intrinsic value of the op on

Lower Level of the lower barrier

Barrier

Lower Set to Down-In

Barrier
Nature

Upper Level of the upper barrier

barrier

Upper Set to Up-In

barrier
nature

Frequency Describes the period between searches for discretely monitored Knock-in
and barriers. For con nuously monitored barriers, these fields should be le as
frequency <none>.
unit

Valua on
The Double Knock-in is valuated with a quoted approach only.

Journal and Event Genera on

The Double Knock-in is excluded from the Journal and Event Genera on processing.

Knock-In Knock-out
A class of double barrier op ons that mixes a Knock-in and a Knock-out barrier.

It is a European plain Vanilla op on with two American barriers:

Knock-out un l expira on, which implies that the Knock-in barrier must be hit to enable the Vanilla op on, and the Knock-
out is applicable for the life me of the op on. The two barriers can be any mix of regular and reverse barriers: RKI+RKO,
RKI+KO, RKO+KI, and KI+KO.

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Knock-out un l Knock in, in which, depending on the first barrier reached, the Vanilla op on can be extended (Knock-out is
first) or the Knock-out barrier is disabled (Knock-in is first) and the plain Vanilla pay out is paid.

Instrument Data

A ribute Descrip on

Sub-nature of the Double Knock-in

instrument

Price calcula on Usually the quote or quote/100

rule

Valua on rule Quoted

Front Office – PM does not support theore cal pricing for this class.

Yield curve On which the discoun ng rates are found

Premium payment Usually up-front

rule

Contract size If the quan ty is taken into account in the opera on net amount and
underlying exposure, it is inpu ed here.

Begin date The issue or ini al start date of the op on.

End date Final expira on date of the op on.

Last trade date

Term Event Data

A ribute Descrip on

Validity date Date at which the event is known, usually the same as the Begin Date of the
instrument.

Underlying The instrument underlying the op on, created under its own nature.

Underlying If the quan ty is not taken into account in the opera on net amount but in the
quan ty underlying exposure, it is inpu ed here instead of the contract size in the
instrument.

Strike price Or exercise price

and its
currency

Op on class Call or Put

Op on style European

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A ribute Descrip on

Physical flag Indicates whether the underlying is physically delivered, or the op on posi on is
delivery cash se led. Physical delivery is allowed in this case since the Payoff nature is a
Vanilla func on.

Premium Same as instrument level.

payment
rule

Payoff Indicates the payoff of the op on. Permi ed values are:

nature
None

Vanilla payoff: the payoff is equal to the intrinsic value of the op on

Lower Level of the lower barrier

Barrier

Lower Sets the nature of the lower barrier depending on the mix RKI+RKO, RKI+KO,
Barrier RKO+KI, and KI+KO.
Nature

Upper Level of the upper barrier

barrier

Upper Sets the nature of the upper barrier depending on the mix RKI+RKO, RKI+KO,
barrier RKO+KI, and KI+KO.
nature

Frequency Describes the period between searches for discretely monitored Knock-in
and barriers. For con nuously monitored barrier, these fields should be le as
frequency <none>.
unit

Valua on
The Knock-in Knock-out are valuated with quoted approach only.

Journal and Event Genera on

The Knock-in Knock-out are excluded from the Journal and Event Genera on processing.

Op ons on Two Assets

A Best-of-2 op on provides the op on holder with a payoff based on the independent performances of two separate and dis nct securi es (or indices). The payoff
func on gives the op on holder the right to receive an amount based on the greater performing asset, being the higher one of the two underlying securi es.

Instrument Data
The op on is structured by establishing upfront two separate strike prices; one strike for each security. When the op on expires, the op on holder will receive the
difference between the maturity value on the be er performing security and its strike price in percentage terms, applied against the face amount of the contract.

The terminal payoff of these op ons is defined as maximum of: (spot instrument one – spot instrument two; 0). The basic structure is to define as an underlying a
composite instrument made up of 1 instrument one and –1 instrument two.

Otherwise all data is as a normal op on. The vola lity of each component is stored at the component level. The correla on between the two assets is stored at the
composite instrument level (instrument chronological data).

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Mortgage-Backed Securi es
An asset-backed security is constructed by packaging together a group of securi es and then issuing a new security whose buyer has a claim against the cash flows
generated by the original package. This process is known as securi sa on.

The Mortgage-Backed Security (MBS) is a typical example. A firm puts together a por olio of mortgages and then sells claims against that por olio. The investor buys
a piece of that credit-risk-free mortgage por olio. Payments containing interest and principal are then due to the investor.

One of the problems with MBS is that homeowners generally hold the right to pay off their mortgages at any me. In a period of declining rates, mortgage holders
receive principal repayments earlier than planned, which leaves mortgage investors with cash flows to be invested at an interest rate lower than expected or planned
for.

Instrument Data
The following sec ons describe which data to enter and where:

Sub-nature

Mortgage Nature

Sub-nature
Mortgage passthrough: A securi sed mortgage with interest and principal paid to the investor by the servicing intermediary
shortly a er these payments are received from the borrowers.

PO (Principal Only): A por on of the underlying collateral cash flows is stripped apart to create a Principal Only type of MBS.
Investors pay a price generally deeply discounted from the face value and receive the face value through scheduled
payments and prepayments. By defini on, POs have a stated fixed interest rate of zero. The yield is mainly a func on of the
prepayment speed. Slower-than-expected prepayment speeds will have a nega ve effect on yield; conversely, faster-than-
expected prepayment speeds will have a posi ve effect on yield.

IO (Interest Only): A por on of the underlying collateral cash flows is stripped apart to create an Interest Only type of MBS.
They have no face or par value and receive no principal. IO securi es are en tled to a por on of the interest rate paid on
the en re pool of the underlying MBS. The principal amount that serves as a reference for determining the amount of
interest to be paid on an IO class is commonly referred to as the “no onal principal balance” of the IO class. The cash flow
payable to an IO class decreases as the no onal principal balance declines. As a consequence, the future cash flow
an cipated from an investment in IO securi es will decline in periods of fast prepayments (e.g., declining interest rates) and
increase in periods of slow prepayments (e.g., rising interest rate environment).

Mortgage Nature
The Mortgage nature indicates the nature of the underlying mortgages of an MBS.

Level-payment, Fixed-Rate Mortgage: The borrower pays interest and repays principal in equal instalments over an agreed-
upon period of me. Each monthly mortgage payment is due on the first of each month and is equal to:

Interest of 1/12th of the fixed annual interest rate mes the amount of the outstanding mortgage balance at the
beginning of the previous month,

Repayment of a por on of the outstanding mortgage balance (principal).

Graduate Payment Mortgage (GPM): The interest rate and the terms of the mortgage are fixed. The difference here is that
the monthly mortgage payment is smaller in the ini al years than the level-payment, fixed-rate mortgage with the same
mortgage rate, but becomes larger in the final years. The terms of a GPM plan include:

Mortgage rate

Terms of the mortgage

Number of years over which the monthly mortgage payment will increase and when level payments will begin

Annual percent increase in the mortgage payments

Balloon/Reset Mortgage: The borrower is given long term financing by the lender but at a specified future date, the contract
is renego ated. It is equivalent to an early redemp on of the remainder of the outstanding principal. This is defined as an
event in the issue/redemp on sub-table, with the nature set at Balloon/Reset.

Prepayment rate (Chrono): the prepayment rate where the prepayment model is CPR or APR.

Scaling Factor (Chrono): used to scale a prepayment model.

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Swap ons
A swap on is an op on on an interest rate swap (IRS). Over-the-counter (OTC) swap ons are invariably European style but American style swap ons are possible.

A receiver swap on (a put) gives the owner of the swap on the right but not the obliga on to receive fixed interest and pay
floa ng interest for a fixed amount and tenor at a predetermined date and me.

A payer swap on (a call) gives the owner of the swap on the right but not the obliga on to pay fixed interest and receive
floa ng interest for a fixed amount and tenor at a predetermined date and me.

The strike will be a specific fixed swap rate.

The pricing of swap ons reflects the poten al vola lity of future swap rates, extrapolated from less vola le future forward rates.

On expiry, the receiver swap on will be exercised when the prevailing market rate for the swap tenor held is lower than the strike of the op on owned. Similarly, a
payer swap on will be exercised when the prevailing market rate for the swap tenor held is higher than the strike of the op on owned.

Exercised swap ons may be exercised in one of two ways, physical delivery of the underlying or cash se lement.

Physical swap se lement: The buyer has the right and the writer the obliga on to effect the underlying swap. During the life
of the op on however, the circumstances of the par es to the deal may change. The op on holder may become concerned
over the possibility of default by the writer, alterna vely either party may suffer a reduc on in its credit ra ng therefore
becoming unsuitable as a swap counterparty. In these scenarios, the documenta on of the deal may provide for early cash
se lement.

Cash se lement: The calcula on basis for cash se lement on exercise is not provided in standard documenta on and must
be agreed between the par es at the me of the deal. Usually, when the op on is wri en, the par es will nominate a
number of approved reference banks. These banks will provide bid and offer rates for the underlying swap tenor; these
rates and the en re group of rates are averaged to produce a mean rate. The mean rate is compared with the strike to
determine if any cash payment is due to the op on buyer. Another procedure for cash se lement calcula on is discoun ng:
The value of fixed and floa ng payments of the underlying swap are discounted to net present value and the rate is
compared to the strike.

Instrument Data
Same as op on, except underlying is an instrument with nature swap.

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Flow Instruments
Flow Instruments are defined solely by their future cash flows. Front Office – PM then values these instruments by discoun ng the future cash flows. Sensi vity
factors are also computed.

The Flow Instrument nature allows banks to handle instruments with more complex payoffs. In par cular, this type of instrument can be used to handle:

Equity Swaps

Mortgage-Backed Securi es (some, not all)

When you create your Flow Instruments, be sure to select the Flow Instrument nature.

Equity Swaps
An equity swap is defined by an interest rate condi on for the floa ng leg and an income event for the dividends es mated during the life of the contract. As the
dividend issue dates are not known, they must be forecasted.

Instrument Data
The following data must be entered in the instrument table:

Valua on rule must be set to Theore cal so that the instrument gets valuated with a theore cal price.

Enter a Begin Date.

Enter the accrual rule for compu ng the coupon (usually Actual/365).

Enter an End Date.

Equity swap or non-vanilla swap sub-nature must be selected.

Income Event
Floa ng leg
An Income Event must be created for the floa ng leg. The following data is mandatory:

A ribute Descrip on

Validity Date from which the event is known

Date

Begin Date at which the flow begins to accrue

Date

Nature Income to pay or income to receive

First Date at which the first flow is paid

Coupon
Date

Last If not specified, it is the End Date of the instrument

Payment
Date

Payment Number of Payment Frequency Units between two payments

Frequency

Payment Period between the last payment date and the next payment date
Frequency
Unit

Currency Currency in which the payments occur.

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A ribute Descrip on

Yield Yield curve that is used to discount the cash flows generated by the income event. If
Curve it is not specified, the default yield curve (with the same Currency as the Income
Event) is used automa cally.

Dividend leg
One Income Event per dividend must be created. The following data is mandatory:

A ribute Descrip on

Validity Date from which the event is known

Date

Begin Date at which the income begins to accrue

Date

Nature Income to pay or income to receive

End Date Date at which the dividend is paid

Payment Number of Payment Frequency Units between two payments

Frequency

Payment Period between the last payment date and the next payment date
Frequency
Unit

Currency Currency in which the payments occur.

Dividend Unit dividend amount

Yield Yield curve that is used to discount the cash flows generated by the income event. If
Curve it is not specified, the default yield curve (with the same Currency as the Income
Event) is used automa cally

Interest rate condi on

An interest rate condi on must be entered to compute the floa ng leg income:

A ribute Descrip on

Interest Calcula on Rule Defines if the interest rate condi on is fixed or floa ng.

Validity Date Date at which the rate is known.

Begin Date Date at which the income begins to accrue.

End Date Normally the End Date of the instrument.

Benchmark Rate from which the floa ng incomes are computed.

Mortgage-Backed Securi es

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With mortgage-backed securi es (MBS), you create the instrument as before with the Flow Instrument nature, only this me you select Mortgage-Backed Security as
the sub-nature.

Instrument Data

A ribute Descrip on

Price The value is Quote / 100

Calcula on
Rule

Valua on The value is Theore cal so that the AdAM keyword is called through the Valua on
Rule rule defined in the AA_DEF_VAL_RULE system parameter.

Begin Date Date at which the income begins to accrue.

Accrual Usually Actual/365.

Rule

End Date Normally the End Date of the instrument.

Sub-nature Mortgage Backed Security or Structured Bond.

Income Event
An Income event must be created for the floa ng leg. The following data is mandatory:

A ribute Descrip on

Nature Income To Pay or Income To Receive.

Validity Date at which the event is known.

Date

Begin Date at which the flow begins to accrue.

Date

First Date at which the first flow is paid.

Coupon
Date

Payment This data is added to the Income Event Begin Date to compute the different
Frequency payment dates.
Payment
Frequency
Unit

Currency Currency in which the payments are made.

Yield Yield curve that is used to discount the cash flows generated by the Income Event. If
Curve it is not specified, the default yield curve with the same currency as the income
event is automa cally used.

Interest Rate Condi on

An interest rate condi on must be entered for the floa ng leg income computa on:

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A ribute Descrip on

Interest Calcula on Rule The corresponding Interest Calcula on Rule.

Validity Date Date at which the rate is known.

Begin Date Date at which the income begins to accrue.

End Date Normally the end date of the instrument.

Benchmark Rate at which the floa ng incomes are computed.

Issue/Redemp on Event
An Issue/Redemp on Event must be entered for each repayment and capital increase. The following informa on is necessary:

A ribute Descrip on

Nature Capital To Pay or Capital To Receive.

Validity Date at which the redemp on is known.

Date

Begin Date Date of the redemp on.

End Date Payment date of the redemp on.

Quote Redemp on quote (not used: ignore the “1” that is inserted by default).

Currency Currency in which the repayment is se led.

Price Normally computed according to the Price Calcula on rule (=> 0.01 if the Price
Calcula on rule is Quote/100).

Propor on Percentage of the face value that is repaid.

Frequency Added to the redemp on begin date to compute the different payment dates.
Frequency
Unit

Yield Yield curve that is used to discount the cash flows generated by the
Curve Issue/Redemp on Event. If it is not specified, the default yield curve in the same
currency as the Issue/Redemp on Event is automa cally used.

Examples
Equity Swap

Mortgage-Backed Securi es

Equity Swap

Formulas
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Forward-Forward Rate Computa on
The Forward-Forward Rate Computa on uses the following formula:

Transforma on of the simple rates into compound rates in the yield curve:

where rC = compound rate

rS = simple rate

n = number of days between the Ini al Date and rate maturity (e.g., 3-month rate)

Computa on of the rate at the Begin Date of the flow (linear interpola on):

where r1 = rate between the flow Begin Date and the Domain Ini al Date

rk = rate that comes just a er the flow Begin Date on the yield curve a ached to the rate

rk-1 = rate that comes just before the Begin Date of the flow on the yield curve a ached to the rate

n1 = number of days between the flow Begin Date and the Domain Ini al Date.

Computa on of the rate at the End Date of the flow (linear interpola on):

where r2 = rate between the flow payment date and Domain Ini al Date

rk = rate that comes just a er the flow payment date on the yield curve a ached to the rate

rk-1 = rate that comes just before the Begin Date of the flow on the yield curve a ached to the rate

n2 = number of days between the flow payment date and the Domain Ini al Date

Forward-Forward Rate Computa on used for flows computa ons:

where b = Yield Curve basis found in accrual rule

Discount Factor Computa on
Computa on of the rate between the Domain Ini al Date and the flow payment date (interpola on):

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where ni = number of days between the flow payment date and the Domain Ini al Date

Discount factor computa on:

where ni = number of days between the flow payment date and the Domain Ini al Date

Price Computa on
Discount of all generated flows using the Discount factors computed with the formula:

Where CFi = Cash Flow i = quan ty * r fwd-fwd (for the considered period)

Test Case
Flow instrument
The following images show the main data entry fields and tables for an equity swap (in this case, the FBA_BBL_Equity_Swap instrument). The first image shows a
Flow Instrument being created in the Modify Instrument screen:

You must then create four Income Events, three dividends to pay (Income To Pay nature) and a floa ng leg to receive (Income To Receive nature). Click on bu on
Income Event to open the screen:

First dividend to pay:

Second dividend to pay is the same as the first dividend except for:

Begin Date: 31/12/2002

Last Payment Date: 31/12/2003

Third dividend to pay is the same as the first dividend except for:

Begin Date: 31/12/2003

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Last Payment Date: 31/12/2004

The floa ng leg to receive needs the same data as the first dividend except for

Currency: CHF

Yield curve: FBA_CHF_YieldCurve

You must then create an Interest Rate Condi on to define the floa ng leg:

Rate

A er you have created the Rate, you must create Prices for it. To do this, click the Price bu on at the bo om of the screen:

FBA_BBL_RATE1 prices:

Yield curve
FBA_EUR_YieldCurve and FBA_CHF_YieldCurve:

Here is the data of the two yield curves. First, the Euro yield curve:

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Then, the Swiss Franc yield curve:

Result in the Journal (to be compared with the preceding ExcelÔ spreadsheets)/Event Genera on

Result in the Valua on (to be compared with the preceding ExcelÔ spreadsheets)

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Mortgage-Backed Securi es

Formulas
The computa on methods are iden cal to the ones described for Equity swaps (see sec on Equity Swap). The only difference is that if Issue/Redemp on Events are
defined, the quan ty on which the incomes are calculated must be computed using the following formula:

where Ck = Cash Flow Amount at me k

r = mortgage rate

A = Mortgage Total Amount (Principal)

Rn = Par al Redemp on at me n

Test Case
Flow Instrument

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You must then create an Income Event:

Next, you must create an Interest Rate Condi on to define the floa ng leg. To do this, click the Int Rate Cond bu on at the bo om of the Instrument screen and click
Create bu on:

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Then, you must define four Issue/Redemp on Events:

The first redemp on is created as follows:

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The second redemp on is the same as for the first except:

Begin Date: 31/12/2002

End Date: 31/12/2003

Propor on: 40

The third redemp on is the same as for the first except:

Nature: Capital to Pay

Begin Date: 31/12/2003

End Date: 31/12/2004

Propor on: 10

The fourth redemp on is the same as for the first except:

Begin Date: 31/12/2004

End Date: 31/12/2005

Propor on: 50
Rate
The rate is the same as for Equity SwapRateRateRateRate.
Yield curve
The mortgage-backed security yield curve is FBA_CHF_YieldCurve:

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The following illustrates the result in the Journal (to be compared with the preceding ExcelÔ spreadsheet)/Event Genera on:

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The following illustrates the result in the Valua on (to be compared with the preceding ExcelÔ spreadsheet):

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Structured Products
Front Office – PM includes some features to help in the management of structured products such as a set of a ributes to record the terms and condi ons rela ve to
these products. The principle is to manage this type of product as a sub-class of a financial instrument deriving from an exis ng nature already supported.

Through this approach, the structured product can inherit the a ributes and features applicable for the instrument nature selected to host its defini on, and to
record the addi onal informa on specific for the structured product.

For the exis ng nature, an addi onal a ributes is available to classify the instrument as a structured product, and the sub-nature is extended to cover more types of
financial products that belong to the structured product class.

Therefore, the screen defini ons of Fixed Income, Conver ble Bonds, Exo c Op on, and Money Market nature include a set of a ributes and capabili es to derive
from their defini on the se ngs of different cases of structured products.

Currently, the financial library available with TAP (Simcorp) does not support structured products for financial calcula ons such as delta, dura on, alpha etc. The
values can be imported via an interface or a service call and to be stored in the Instrument Chrono table for the calcula ons to be enabled.

The following sec ons provide addi onal informa on and examples of the possibili es offered by Front Office – PM to configure structured products:

Instrument - Iden fying Structured Products

Terms and Condi ons

Structured Product via Composi on

Structured Product via Terms and Condi ons

Instrument - Iden fying Structured Products

The taxonomy of a financial instrument provides the ability to iden fy the instrument belonging to a structured product class.

A ribute Descrip on

Instrument Specifies whether the instrument belongs to structured product or not. It is

Class applicable for informa on purposes only.

Possible values are:

0 - The product is not a structured product.

1 - Structured Product Standalone: describes a product with all terms

and condi ons defined in the instrument itself.

2 - Structured Product Composite: describes a product with a defini on

based on a composi on of instrument.

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A ribute Descrip on

Sub-nature A large set of sub-natures is available to classify the instrument per type of
structured product. In the standard packing, the following are delivered:

Accumulator

Decumulator

Capital Protec on Notes

Capital Protec on Notes with Coupon

Reverse Conver bles Notes - Equity Linked Notes

Reverse Conver bles Notes - Bonds Linked Notes

Reverse Conver bles Notes - Credit Linked Notes

Discount Cer ficates

Twin Win Cer ficates

Bonus Notes

Memory Coupon Notes

Airbag Cer ficates

Dual Currency Investment

Triple Currency Investment

Digital Investment

Digital Pay Out

Tower Investment

Basket Op on

Structured Op on

Par cipa ng Forward

Target Knock-out Forward

Pivot Op on

Target Knock-out Pivot Notes

Forward Forward

Interest Mul plier Facility

Reverse Conver bles Notes

Equity Linked Notes

Bonds Linked Notes

Credit Linked Notes

Terms and Condi ons

A set of a ributes is available to record at the instrument level and/or at the term event level (depending on the instrument nature) and/or at the composi on level
(depending on the underlying category) the addi onal terms and condi ons rela ve to the different kinds of structured products.

A ribute Table Descrip on

Underlying Instrument Used to iden fy if the structured product is based on a Single

Category underlying instrument, an Average Basket or a Worst-of Basket

Fixing Date Instrument The date of underlying valua on. If different from the begin date,
this date is o en mes few days prior to the begin date.

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A ribute Table Descrip on

Ini al Fixing Instrument The ini al fixing price/level of the underlying instrument (in the
Price case of Single underlying instrument) or of basket (in the case of
Term Event Average Basket.)

This is defined as the quote/price of underlying instruments as of

fixing date.

Composi on Sets the ini al fixing price/level of each of the underlying

instruments in the basket (in the case of Average Basket and
Worst-of Basket.)

Exercise Instrument The strike price rela ve to the underlying instrument in the case
Quote of single underlying instrument or of the basket in the case of an
Term Event Average Basket.

The purpose is to dis nguish the strike price from the redemp on,
which is applicable to the instrument itself.

If an Exercise % is provided, it will be calculated as Exercise % *

Ini al Fixing Price

Composi on The strike price of each of the underlying instruments in the

basket (in the case of Average Basket and Worst-of Basket.)

Exercise Instrument An alterna ve way to define a strike. Sets the strike as a

Quote % percentage of the Ini al fixing price.
Term Event
The Exercise quote % is also calculated as Strike / Ini al Fixing
Composi on Price. By default, it is set to 100%

Barrier Instrument The nature of the barrier with standard values:

Nature
Term Event Up and In

Composi on Up and Down

Down and In

Down and Out

Barrier Instrument The barrier applicable to the underlying.

Term Event In case of double barrier, it is the downside barrier.

Composi on It is calculated as Barrier % * Ini al Fixing Price

Barrier % Instrument An alterna ve way to define a barrier. Sets the barrier as a

percentage of the Ini al fixing price.
Term Event
It is also calculated as Barrier / Ini al Fixing Price.
Composi on

Rebate Instrument The rebate applicable when the barrier is reached.

Rebate at Instrument Specifies whether the rebate is paid at hit or maturity.

hit

Upper Instrument The type of upper barrier.

Barrier
Nature Term Event

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A ribute Table Descrip on

Upper Instrument The upper side barrier applicable for the underlying instrument.
Barrier
Term Event It is calculated as Upper Barrier % * Ini al Fixing Price

Upper Instrument An alterna ve way to define an upper barrier. Sets the upper
Barrier % barrier as a percentage of the Ini al fixing price.
Term Event
It is also calculated as Upper Barrier / Ini al Fixing Price.

Rebate Up Instrument The rebate applicable when the upper barrier is breached.

Upper Instrument Specifies whether the upper rebate is paid when the barrier is
Rebate at breached or at maturity.
Hit

Pay Off Instrument The payoff applicable.

Nature
For the following natures, there is no Event Genera on processed
from the Term Event.

Accumulator

Decumulator

Digital

Short

Long

Capital Instrument The level of protec on of the capital at expira on if the underlying
Protec on instrument’s price falls below the exercise quote.

Expressed as a number: so 1.2 if it is 120%

Par cipa on Instrument The level of par cipa on applicable when the price of the
Level underlying instrument is above a threshold (generally the
strike/exercise quote).

Expressed as a number: so 1.2 if it is 1.2x

Par cipa on Instrument The level of par cipa on applicable when the price of the
Level Down underlying instrument is below a threshold (generally the
Side strike/exercise quote)

Expressed as a number: so 1.2 if it is 1.2x

Cap Level Instrument The cap to limit the benefit applicable.

Expressed as a number: so 0.4 if it is 40% cap

Bonus Level Instrument The price that represents the bonus applicable for the payoff if the
underlying price does not breach threshold.

Minimum Instrument The minimum payoff amount in case of digital condi ons.
Value

Maximum Instrument The maximum payoff amount in case of digital condi ons.
Value

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A ribute Table Descrip on

Leverage Instrument The leverage/gearing factor.

Effec ve Instrument The adjusted leverage/gearing factor.

Leverage

Protected Instrument The date before which the barrier condi ons are not yet
Date enabled/applicable.

Knock-In Instrument The date on which the structured product has been knocked in (if
Date applicable.)

Knock-Out Instrument Tthe date on which the structured product has been knocked out
Date (if applicable.)

Below Instrument The date on which the structured product ended below the Strike
Exercise price (if applicable.)
Date

Weight Composi on The weight of each underlying instrument in an Average basket

Convert Instrument Whether interest/coupon should be converted to an alternate

Interest currency (with the principal) for Dual Currency and Triple Currency
Investments

Fixing Instruments The currency in which a Dual Currency or Triple Currency

Currency Investment will be redeemed (whether it is the investment
currency or the/one of the alternate currencies)

Structured Product via Composi on

When the financial product can be modelled by a linear combina on of other instruments, the instrument composi on feature offers a method to define structured
products. This implies that the instrument must be defined, as well as all instruments applicable for defining its composi on.

The benefits are:

The instrument price can be derived from the price of the instrument in the composi on.

The risk view can process the decomposi on of the instrument according to the components.

For one instrument, of course, it requires having to eventually define several other instruments.

Example - Dual Currency Investment

The dual currency investment is a combina on of a term deposit with a forex op on between the term deposit currency and an underlying currency for the interest
amount.

A ribute Descrip on

Instrument

Nature Money Market

Instrument Structured Product Composite

Class

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A ribute Descrip on

Sub-nature Dual Currency Deposit

Reference Currency of the term deposit

Currency

Begin date, Set for the term deposit

end date

Rate Fixed rate of term deposit

Fixing The currency in which the DCI will be redeemed (either the investment
Currency currency or the alternate currency)

Convert Whether to convert Principal-only or Principal + Coupon

Interest

The composi on is set with:

a term deposit that has the same defini on as the instrument above, and for a quan ty of 1.

an FX exo c op on for a quan ty that represents a ra o derived from the interest rate generated by the term deposit

A ribute Descrip on

Instrument

Nature Exo c Op on

Instrument Class Structured Product Composite

Reference Currency Same as reference currency of the term deposit

Begin date, end date Same as term deposit

Term Event Table

Op on class Put

Op on Style European

Underlying Set with the (Alternate) currency of the term deposit

Exercise Quote Strike price

Barrier Barrier level if applicable

Structured Product via Terms and Condi ons

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Front Office – PM provides a set of a ributes in the instrument defini on to help record (for informa on purposes only) the terms and condi ons rela ve to the
structured product.

The following sec ons provides examples of the usage of these a ributes. These examples demonstrate how to set structured products into Front Office – PM:

Example 1 - Capital Protec on Notes with or without coupon (CPN)

Example 2 - Reverse Conver ble Notes (Equity Linked)

Example 2.B - Memory Coupon Note

Example 3- Discount Cer ficates

Example 4- Twin Win Cer ficates

Example 5- Bonus Notes

Example 6- Airbag Cer ficates

Example 7- Mini-Futures Turbo

Example 8- Dual Currency and Triple Currency Investments

Example 9- Accumulator and Decumulator

Example 10 - Par cipa ng Forwards and TARKOs

Example 1 - Capital Protec on Notes with or without coupon (CPN)

The following provides an example of instrument se ng to manage Capital Protec on Notes with or without coupon:

A ribute Descrip on

Instrument

Nature Fixed Income

Instrument Structured Product Standalone

Class

Sub-nature Capital Protec on Notes (for non-coupon paying notes) or Capital Protec on
Notes with Coupon (for coupon paying notes)

Fixing Date Example: 5 business days before begin date

Price Quote/100
Calcula on
Rule

Op on Style Set to European in the context of Knock-out barriers.

Underlying Set the underlying category: Single Instrument; Average Basket or Worst-Of
Category Basket

Underlying In the case of single underlying instrument, references the applicable underlying
instrument to define the redeemed value to the investor at maturity.

Example: XYZ

Else (in the case of basket underlying), refer to Composi on sec on below

Exercise Strike price of the underlying instrument at maturity to define the redemp on
Quote value in the case of single underlying (else refer to Composi on sec on).

Example: $10

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A ribute Descrip on

Exercise Strike price in percentage terms in the case of single underlying (else refer to
Quote % Composi on sec on)

Example: 100%

Barrier Barrier price rela ve to the Knock-out condi on in the case of single underlying
(else refer to Composi on sec on).

Example: $14. If at end date, the price is above the barrier, the investor receives
the rebate, which is $11.

Barrier % Barrier in percentage terms in the case of single underlying (else refer to
Composi on sec on)

Example: 140%

Barrier The nature of the applicable barrier.

Nature
Example: Up & Out. As it is a European, if the underlying price is above the barrier
at expira on, the investor receives the rebate.

Rebate Value of the rebate if the Knock-out barrier is breached.

Example: 11

Capital Level of protec on of the capital at expira on if the underlying price falls below
Protec on the exercise quote.

Example: 100%. If the underlying price at maturity is 6, then the investor has
his/her capital fully protected.

Par cipa on Level of par cipa on if the price of the underlying is above the strike but below
Level the barrier.

Example: 90%. If the underlying price at maturity is 12, then the investor receives
10 + 2*90%=$11.80 per underlying unit.

Cap Level The maximum poten al profit that can be earned by the investor.

Composi on (in the case of a Basket underlying)

Weight The weight of each underlying instrument in an Average Basket

Instrument References the applicable underlying instruments in a basket underlying to define

the redeemed value to the investor at maturity.

Example: ABC; EFG; XYZ

Exercise Strike price of each underlying instrument in a basket.

Quote
Example: $10

Exercise Strike price in percentage terms in the case of each underlying in a basket.
Quote %
Example: 100%

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A ribute Descrip on

Barrier Barrier price of each underlying in a basket.

Example: $14

Barrier % Barrier in percentage terms for each underlying in a basket

Example: 140%

Barrier Defines the nature of the applicable barrier.

Nature
Example: Up & Out.

Interest Rate Condi ons (not set if there is no coupon) - Refer to Interest rate condi ons sec on
in Fixed Income if coupons are set.

Opera ons
The Capital Protected Notes are bought and sold using the ‘buy’ and ‘sell’ opera ons.

Business Func ons

Valua on

The instruments are valued according to their valua on rule. Typically, such instruments are quoted instruments and are specific contracts between the buyer and
seller. The price is quoted (fixed) by the seller of such contracts at the me of execu on and once the buyer agrees to the contract price and other terms and
condi ons of the contract, the deal is executed. Therefore, these instruments need not have a daily quote during the contract period.

Risk Posi on - Full exposure

The risk posi on (view) for valua on assumes the note remains ac ve un l the end date and the view then decomposes the note into:

I. A zero coupon/ interest bearing bond posi on (capital guarantee part is handled in this posi on)

II. A posi on in the underlying instrument (Risk equivalent to a long call op on on the underlying)

III. An offse ng cash posi on

Zero Coupon Bond (note without coupon)/ Interest bearing bond (note with coupon)

The bond posi on will inherit all features of the CPN and will be evaluated by a theore cal rule, using the AA_DF_BOND() keyword. The quan ty is set to the
quan ty of the posi on of the note, maturity set to the end date of the note, interest rate set to 0 (for notes without coupon) or set to interest calcula on rule (for
notes with coupon) and then the theore cal price of the bond as of the valua on date is computed.

The quan ty of the bond would include the capital protec on component of the note and the formulae is:

Quan ty of bond = Quan ty of the posi on of CPN * Capital protec on

Underlying posi on

A new system parameter ‘RISK_STN_COST_RULE’ (similar to ‘RISK_OPT_COST_RULE’) is added and this would determine the cost price rule applicable for the
underlying of the structured notes. The possible values (default value is 2) are:

I. Ini al fixing price

II. Exercise price

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

Underlying
Valua on
Category

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Underlying
Valua on
Category

Single Quan ty = Quan ty of positon of CPN/ Cost based on RISK_STN_COST_RULE

system parameter

If knock-out date is not null, then show the quan ty as above, with the price set to
rebate price.

Rebate price = Cost price * Rebate levels

Else,

Price = Min(current market price, cap price^^, par cipa on price^^^)

Cap price^^ = Cost price * Cap levels

Par cipa on price^^^ is calculated only when current market price >= Cost price.
Par cipa on price^^^ = Cost price + par cipa on level * (current market price –
cost price)

The cost price is determined based on RISK_STN_COST_RULE system parameter.

Average Quan ty = Quan ty of positon of CPN * ini al weights in each underlying

Basket instrument / Cost based on RISK_STN_COST_RULE system parameter

The other business logic is same as for the single underlying instrument except the
price is computed for each posi on in the basket.

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the CPN is determined by the worst performing instrument. The other instruments
in the basket will be shown with price and cost set to 0 (the quan ty of the same
will not be 0 and is retrieved from the underlying instrument quan ty), while the
quan ty of the worst-of instrument is determined by:

Quan ty = Quan ty of positon of CPN/ Cost of the worst-of instrument based on

RISK_STN_COST_RULE system parameter.

The other business logic is the same as for a single underlying instrument.

Note: If there are 2 or more worst performing instruments, then equal weights
would be assigned to each of them.

Cash posi on

An offse ng cash posi on will be shown in the currency of the note that is calculated by using the current value of the CPN adjusted for the value of bond and the
underlying equity posi on.

Risk Posi on - Delta exposure

The underlying posi on will be shown with the underlying quan ty * delta of the note. The delta for the CPN is given by the issuer (stored in instrument chrono
table). All other business logic (bond, underlying posi on pricing logic and cash posi on) is the same as for "Full exposure". If a delta is not available, then the result
would be the same as "Full exposure".

Journal

The Final Redemp on value of a Capital Protected Note depends on events occurring during the life me of the note or at final valua on/maturity date depending on
the op on style. These events are whether the note has been knocked out or not and whether it has ended below or above the strike price.

The system’s current date – which is the system date (SYSDATE()) -- is a key a ribute is spli ng the historical and future cashflows.

The trading day is derived from the calendar in the instrument table.

All cashflows except those of the final redemp on (e.g. coupons) will be similar to how those are generated for a simple bond (fixed income).

For Final redemp on cashflows:

Scenarios Journal of Liquidity

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Scenarios Journal of Liquidity

If the barrier has been knocked out (current date >= As of maturity date, the Final
knocked-out date). Redemp on is expected to be as:

Quote = 100

Quan ty = - quan ty of posi on * (

capital protec on + rebate)

If the barrier has not been knocked out (current date As of maturity date, the Final
< knocked-out date or knocked-out date is null) and if Redemp on is expected to be as:
underlying instrument price is above strike price
(below exercise date is null) Quote = 100

Quan ty = - quan ty of posi on *

maximum of ( capital protec on or
minimum of (cap level or par cipa on
level * underlying performance)

-Q*max[K, 1+min(C, P*Δ%)]

If the barrier has not been knocked out (current date As of maturity date, the Final
< knocked-out date or knocked-out date is null) and if Redemp on is expected to be as:
underlying instrument price is below strike price
(below exercise date is not null) Quote = 100

Quan ty = - quan ty of posi on *

capital protec on

Example 2 - Reverse Conver ble Notes (Equity Linked)

Below an example of instrument se ng to manage Reverse Conver ble - Equity Linked Notes.

At maturity, the investor does not have any guarantee to recover the fully-invested capital. The price of the underlying, at maturity, is compared with the strike to
define the redemp on value. This higher risk is compensated by a higher coupon payment during the life of the instrument compared with a fixed income that has
the same risk exposure.

In addi on, a barrier can be integrated, with the possibility to have a con nuous monitoring of the barrier during its life or at maturity only.

A ribute Descrip on

Instrument

Nature Conver ble Bond

Instrument Structured Product Standalone

Class

Sub-nature Reverse Conver ble - Equity Linked Notes

Begin Date, Set as usual with the issue date and the maturity date
End Date

Fixing Date Example: 5 business days before begin date

Price Quote/100
Calcula on
Rule

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A ribute Descrip on

Fixed Rate The applicable coupon. It is also possible to manage it via interest rate condi on.

Example: 10%

Op on Style Used for barriers to record whether the monitoring is con nuous (American) or at
expiry (European).

Underlying The underlying instrument type: Single Instrument; Average Basket or Worst-Of
Category Basket

Underlying In the case of single underlying instrument, references the applicable underlying
instrument to define the redeemed value to the investor at maturity.

Example: XYZ

Else (in the case of basket underlying), refer to Composi on sec on below

Exercise Strike price of the underlying instrument at maturity to define the redemp on
Quote value in the case of single underlying (else refer to Composi on sec on).

Example: $10

Exercise Strike price in percentage terms in the case of single underlying (else refer to
Quote % Composi on sec on)

Example: 100%

Barrier Barrier price rela ve to the Knock-out condi on in the case of single underlying
(else refer to Composi on sec on).

Example: $8

Barrier % Barrier in percentage terms in the case of single underlying (else refer to
Composi on sec on)

Example: 80%

Barrier The nature of the applicable barrier.

Nature
Example: Down & In.

Par cipa on Level of par cipa on if the price of the underlying instrument is above the strike
Level but below the barrier.

Example: 90%. If the underlying price at maturity is 12, then the investor receives
10 + 2*90%=$11.80 per underlying unit.

Composi on (in the case of a Basket underlying)

Instrument References the applicable underlying instruments in a basket underlying to define

the redeemed value to the investor at maturity.

Example: ABC; EFG; XYZ

Weight The weight of each underlying instrument in an Average Basket

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A ribute Descrip on

Exercise Strike price of each underlying instrument in a basket.

Quote
Example: $10

Exercise Strike price in percentage terms in the case of each underlying in a basket.
Quote %
Example: 100%

Barrier Barrier price of each underlying in a basket.

Example: $8

Barrier % Barrier in percentage terms for each underlying in a basket

Example: 80%

Barrier Defines the nature of the applicable barrier.

Nature
Example: Down & In.

Opera ons
Reverse Conver ble Notes are bought and sold using the ‘buy’ and ‘sell’ opera ons.

Business Func ons

Valua on

The instruments are valued according to their valua on rule. Typically, such instruments are quoted instruments and are specific contracts between the buyer and
seller. The price is quoted (fixed) by the seller of such contracts at the me of execu on and once the buyer agrees to the contract price and other terms and
condi ons of the contract, the deal is executed. Therefore, these instruments need not have a daily quote during the contract period.

Risk Posi on - Full exposure

The risk posi on (view) for valua on assumes the note remains ac ve un l the end date and the view then decomposes the note into:

I. An interest bearing bond posi on

II. A posi on in the underlying instrument (Risk equivalent to a short put op on on the underlying)

III. An offse ng cash posi on

Interest bearing bond (note with coupon)

The business logic is same as for the bond component of Capital Protec on notes with the only excep on being no capital protec on a ached to reverse
conver bles (RCN).

Underlying posi on

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

Underlying
Valua on
Category

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Underlying
Valua on
Category

Single Quan ty = Quan ty of positon of RCN/ Cost based on RISK_STN_COST_RULE

system parameter

If knock-in date is null, then show the quan ty as above, with both the price and
cost set to 0.

If knock-in date is not null and if the price of the underlying instrument is higher
than the cost price, then

Price = Min(current market price, cost price)

If knock-in date is not null and if the price of the underlying instrument is lower or
equal to the cost price, then

Price = current market price

The cost price is determined based on RISK_STN_COST_RULE system parameter.

Average Quan ty = Quan ty of positon of RCN * ini al weights in each underlying

Basket instrument / Cost based on RISK_STN_COST_RULE system parameter

If knock-in date is null, then show the quan ty as above, with both the price and
cost set to 0.

If knock-in date is not null and if the price of the average basket is higher than the
average cost price of the basket, then

Price of each underlying instrument = Min(current market price, cost price)

If knock-in date is not null and if the price of the average basket is lower or equal to
the average cost price of the basket, then

Price of each underlying instrument = current market price

The cost price is determined based on RISK_STN_COST_RULE system parameter.

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the RCN is determined by the worst performing instrument. The other instruments
in the basket will be shown with price and cost set to 0 (the quan ty of the same
will not be 0 and is fetched from the underlying quan ty), while the quan ty of the
worst-of instrument is determined by:

Quan ty = Quan ty of positon of RCN / Cost of the worst-of instrument based on

RISK_STN_COST_RULE system parameter.

The other business logic is the same as for a single underlying instrument.

Note: If there are 2 or more worst performing instruments, then equal weights
would be assigned to each of them.

Cash posi on

An offse ng cash posi on will be shown in the currency of the note that is calculated by using the current value of the RCN adjusted for the value of bond and the
underlying posi on.

Risk Posi on - Delta exposure

The underlying posi on will be shown with the underlying quan ty * delta of the note. The delta for the RCN is given by the issuer (stored in instrument chrono
table). All other business logic (bond, underlying posi on pricing logic and cash posi on) is the same as for "Full exposure". If a delta is not available, then the result
would be the same as "Full exposure".

Journal

The Final Redemp on value of a Reverse Conver ble Note depends on events occurring during the life me of the note or at final valua on/maturity date depending
on the op on style. These events are whether the note has been knocked in or not and whether it has ended below or above the strike price.

The system’s current date – which is the system date (SYSDATE()) -- is a key a ribute is spli ng the historical and future cashflows.

The trading day is derived from the calendar in the instrument table.

All cashflows except those of the final redemp on (e.g. coupons) will be similar to how those are generated for a simple bond (fixed income).

For Final redemp on cashflows:

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Scenarios Journal of Liquidity

If the barrier has As of maturity date, the Final

been knocked in Redemp on is expected to
(current date >= be:
knocked-in date).
Quote = 100

Quan ty = - quan ty of
posi on * (1 + min of (0 or
par cipa on level *
underlying performance)

-Q*[1+ min(0, P*Δ%)]

If the barrier has not been knocked in As of maturity date, the Final Redemp on is
(current date < knocked-in date or expected to be:
knocked-in date is null)
Quote = 100

Quan ty = - quan ty of posi on

Example 2.B - Memory Coupon Note

A memory coupon Note is a special case of an RCN with interest calcula on rule set to Memory. Memory coupon note can be defined the same way as an RCN
except for

A ribute Descrip on

Instrument

Nature Fixed Income

Instrument Class Structured Product Standalone

Sub-nature Memory Coupon Note

Coupon Strike Level Set the instrument’s coupon strike level in amount

Coupon Strike Level (%) Set the instrument's coupon strike level in percentage

Interest Rate Condi on

Interest Rate Coupon rate

Interest Calcula on Rule Set to Memory

First Benchmark Date Set the observa on date of the first coupon period of the instrument

Opera ons
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Memory Coupon Notes are bought and sold using the ‘buy’ and ‘sell’ opera ons.

Business Func ons

Valua on

The instruments are valued according to their valua on rule. Typically, such instruments are quoted instruments. Generally, such instruments are specific contracts
between the buyer and seller. The price is quoted (fixed) by the seller of such contracts at the me of execu on and once the buyer agrees to the contract price and
other terms and condi ons of the contract, the deal is executed. Therefore, these instruments need not have a daily quote during the contract period.

Risk Posi on - Full exposure

The risk posi on (view) for valua on assumes the note remains ac ve un l the end date and the view then decomposes the note into:

I. An interest bearing bond posi on (interest calcula on rule = 'Memory')

II. A posi on in the underlying instrument (Risk equivalent to a long call op on on the underlying)

III. An offse ng cash posi on

Interest bearing bond (note with coupon)

The business logic is same as for the bond component of Capital Protec on notes with the only excep on being no capital protec on is a ached to memory coupon
notes (MCN).

Underlying posi on

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

Underlying
Valua on
Category

Single Quan ty = Quan ty of positon of MCN/ Cost based on RISK_STN_COST_RULE

system parameter

If knock-in date is null, then show the quan ty as above, with both the price and
cost set to 0.

If knock-in date is not null and if the price of the underlying instrument is higher or
equal to the cost price, then

Price = Min(current market price, cost price)

If knock-in date is not null and if the price of the underlying instrument is lower
than the cost price, then

Price = current market price

The cost price is determined based on RISK_STN_COST_RULE system parameter.

Average Quan ty = Quan ty of positon of MCN * ini al weights in each underlying

Basket instrument / Cost based on RISK_STN_COST_RULE system parameter

If knock-in date is null, then show the quan ty as above, with both the price and
cost set to 0.

If knock-in date is not null and if the price of the average basket is higher or equal
to the average cost price of the basket, then

Price of each underlying instrument = Min(current market price, cost price)

If knock-in date is not null and if the price of the average basket is lower than the
average cost price of the basket, then

Price of each underlying instrument = current market price

The cost price is determined based on RISK_STN_COST_RULE system parameter.

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Underlying
Valua on
Category

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the MCN is determined by the worst performing instrument. The other
instruments in the basket will be shown with price and cost set to 0 (the quan ty
of the same will not be 0 and is fetched from the underlying quan ty), while the
quan ty of the worst-of instrument is determined by:

Quan ty = Quan ty of positon of MCN/ Cost of the worst-of instrument based on

RISK_STN_COST_RULE system parameter.

The other business logic is the same as for a single underlying instrument.

Note: If there are 2 or more worst performing instruments, then equal weights
would be assigned to each of them.

Cash posi on

An offse ng cash posi on will be shown in the currency of the note that is calculated by using the current value of the MCN adjusted for the value of bond and the
underlying posi on.

Risk Posi on - Delta exposure

The underlying posi on will be shown with the underlying quan ty * delta of the note. The delta for the MCN is given by the issuer (stored in instrument chrono
table). All other business logic (bond, underlying posi on pricing logic and cash posi on) is the same as for "Full exposure". If a delta is not available, then the result
would be the same as "Full exposure".

Journal

All cashflows except those of the Income (i.e. coupons) will be similar to those of an RCN.

Income cashflows will be generated for the Memory Coupon method described in sec on Journal.

Example 3- Discount Cer ficates

Discount cer ficates provide the ability to purchase an underlying at a discounted price. The instrument includes an agreement about the cap level concerning
poten al profits.

At maturity, the investor receives:

A pay out equal to the cap level if the underlying price is equal or higher than the cap level.

A pay out equal to the underlying price if the underlying price is below the cap level.

The instrument can be coupled with a barrier eventually, which will define a level of safety that guarantees a protec on if the underlying price does not fall below.

The following provides an example of instrument se ng to manage discount cer ficates:

A ribute Descrip on

Instrument

Nature Fixed Income

Instrument Structured Product Standalone

Class

Sub-nature Discount Cer ficates

Begin Set as usual with the issue date and the maturity date
Date, End
Date

Fixing Date Example: 5 business days before begin date

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A ribute Descrip on

Price Quote/100
Calcula on
Rule

Op on Set to European in the context of Knock-out barrier.

Style

Underlying Set the underlying type: Single Instrument; Average Basket or Worst-Of Basket
Category

Underlying In the case of single underlying, references the applicable underlying instrument to
define the redeemed value to the investor at maturity.

Example: XYZ

Else (in the case of basket underlying), refer to Composi on sec on below

Exercise Strike price and Discount price of the underlying instrument at maturity to define
Quote the redemp on value in the case of single underlying (else refer to Composi on
sec on).

Example: $10

Exercise Strike price in percentage terms in the case of single underlying (else refer to
Quote % Composi on sec on)

Example: 100%

Barrier Barrier price rela ve to the Knock-out condi on in the case of single underlying
(else refer to Composi on sec on). If the price does not fall below, then the pay
out is defined at the cap level; otherwise, it is at the underlying price at maturity.

Example: $7

Barrier % Barrier in percentage terms in the case of single underlying (else refer to
Composi on sec on)

Example: 70%

Barrier Defines the nature of the applicable barrier, which in this case is a down-out
Nature because it disables the protec on.

Example: Down & In

Cap Level The maximum poten al profit that can be earned by the investor. If the price of the
underlying moves up, the profit is limited by the cap.

Example: $10

Composi on (in the case of a Basket underlying)

Weight The weight of each underlying instrument in an Average Basket

Instrument References the applicable underlying instruments in a basket underlying to define

the redeemed value to the investor at maturity.

Example: ABC; EFG; XYZ

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A ribute Descrip on

Exercise Strike price of each underlying instrument in a basket.

Quote
Example: $10

Exercise Strike price in percentage terms in the case of each underlying in a basket.
Quote %
Example: 100%

Barrier Barrier price of each underlying in a basket.

Example: $7

Barrier % Barrier in percentage terms for each underlying in a basket

Example: 70%

Barrier Defines the nature of the applicable barrier.

Nature
Example: Down & In.

Depending on the condi on applied to the underlying price at maturity, the following payoff is associated:

Price at Direct Investment in

Discount Cer ficates
Maturity Underlying

12.5 11% (the pay out is limited by the cap 25%

level)

10 11% 0%

9 11% - 10%

7 11% - 30%

4 -49% - 60%

Opera ons
Discount Cer ficates are bought and sold using the ‘buy’ and ‘sell’ opera ons.

Business Func ons

Valua on

The instruments are valued according to their valua on rule. Typically, such instruments are quoted instruments and are specific contracts between the buyer and
seller. The price is quoted (fixed) by the seller of such contracts at the me of execu on and once the buyer agrees to the contract price and other terms and
condi ons of the contract, the deal is executed. Therefore, these instruments need not have a daily quote during the contract period.

Risk Posi on - Full exposure

The risk posi on (view) for valua on assumes the cer ficate remains ac ve un l the end date and the view then decomposes the note into:

I. A zero coupon bond posi on

II. A posi on in the underlying instrument (Risk equivalent to a short put op on on the underlying)

III. An offse ng cash posi on

Zero coupon bond

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The business logic is same as for the bond component of Capital Protec on notes with the only excep on being no capital protec on is a ached to discount
cer ficates (DC).

Underlying posi on

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

Underlying
Valua on
Category

Single Quan ty = Quan ty of posi on of DC/ Strike price of DC

If knock-in date is null, then show the quan ty as above, with both the price and
cost set to 0.

If knock-in date is not null, then

Price = Min(current market price, cap price^^)

Cap price^^ = Strike price * Cap levels

The cost price is determined based on RISK_STN_COST_RULE system parameter.

Average Quan ty = Quan ty of posi on of DC * ini al weights in each underlying

Basket instrument/ Strike price of each instrument in the basket

The other business logic is the same as for a single underlying instrument except
the price is computed for each posi on in the basket.

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the DC is determined by the worst performing instrument. The other instruments
in the basket will be shown with price and cost set to 0 (the quan ty of the same
will not be 0 and is fetched from the underlying quan ty), while the quan ty of the
worst-of instrument is determined by:

Quan ty = Quan ty of posi on of DC/ Strike price of the worst-of instrument

The other business logic is the same as for a single underlying instrument.

Note: If there are 2 or more worst performing instruments, then equal weights
would be assigned to each of them.

Cash posi on

An offse ng cash posi on will be shown in the currency of the cer ficate that is calculated by using the current value of the DC adjusted for the value of bond and
the underlying posi on.

Risk Posi on - Delta exposure

The underlying posi on will be shown with the underlying quan ty * delta of the cer ficate. The delta for the DC is given by the issuer (stored in instrument chrono
table). All other business logic (bond, underlying posi on pricing logic and cash posi on) is the same as for "Full exposure". If a delta is not available, then the result
would be the same as "Full exposure".

Journal

The Final Redemp on value of a Discount Cer ficate depends on events occurring during the life me of the note or at final valua on/maturity date depending on
the op on style. These events are whether the note has been knocked in or not and whether it has ended below or above the strike price.

The system’s current date – which is the system date (SYSDATE()) -- is a key a ribute is spli ng the historical and future cashflows.

The trading day is derived from the calendar in the instrument table.

For Final redemp on cashflows:

Scenarios Journal of Liquidity

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Scenarios Journal of Liquidity

If the barrier has been knocked in (current date As of maturity date, the Final Redemp on is
>= knocked-in date). expected to be:

Quote = 100

Quan ty = - quan ty of posi on * ( 1 +

minimum of (cap level or underlying
performance)

-Q*[1+ min(C, P*Δ%)]

If the barrier has not been knocked in (current As of maturity date, the Final Redemp on is
date < knocked-in date or knocked-in date is expected to be:
null)
Quote = 100

Quan ty = - quan ty of posi on * (1 + Cap

level)

Example 4- Twin Win Cer ficates

The following provides an example of instrument se ng to manage twin win cer ficates:

A ribute Descrip on

Instrument

Nature Fixed Income

Instrument Structured Product Standalone

Class

Sub-nature Twin-Win Cer ficate

Fixing Date Example: 5 business days before begin date

Price Quote/100
Calcula on
Rule

Op on Style Set to European or American in the context of Knock-out barriers.

Underlying The underlying instrument type: Single Instrument; Average Basket or Worst-Of
Category Basket

Underlying In the case of single underlying instrument, references the applicable underlying
instrument to define the redeemed value to the investor at maturity.

Example: XYZ

Else (in the case of basket underlying), refer to Composi on sec on below

Exercise Strike price of the underlying instrument at maturity to define the redemp on
Quote value in the case of single underlying (else refer to Composi on sec on).

Example: $10

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A ribute Descrip on

Exercise Strike price in percentage terms in the case of single underlying instrument (else
Quote % refer to Composi on sec on)

Example: 100%

Barrier Barrier price rela ve to the Knock-out condi on in the case of single underlying
instrument (else refer to Composi on sec on).

Example: $8

Barrier % Barrier in percentage terms in the case of single underlying (else refer to
Composi on sec on)

Example: 80%

Barrier The nature of the applicable barrier.

Nature
Example: Down & Out. If the underlying price is above the barrier at expira on,
the investor receives the rebate.

Upside Investors will receive more than their ini al investment par cipa on if the
Par cipa on underlying price is above the strike and has not breached the barrier.

Example: 100%

Downside Investors will receive more than their ini al investment par cipa on if the
Par cipa on underlying price is below the strike and has not breached the barrier.

Example: 100%

Cap Level The maximum poten al profit that can be earned by the investor.

Composi on (in the case of a Basket underlying)

Weight The weight of each underlying instrument in an Average Basket

Instrument References the applicable underlying instruments in a basket underlying to define

the redeemed value to the investor at maturity.

Example: ABC; EFG; XYZ

Exercise Strike price of each underlying instrument in a basket.

Quote
Example: $10

Exercise Strike price in percentage terms in the case of each underlying in a basket.
Quote %
Example: 100%

Barrier Barrier price of each underlying in a basket.

Example: $8

Barrier % Barrier in percentage terms for each underlying in a basket

Example: 80%

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A ribute Descrip on

Barrier Defines the nature of the applicable barrier.

Nature
Example: Down & Out.

Opera ons
Twin-Win Cer ficates are bought and sold using the ‘buy’ and ‘sell’ opera ons.

Business Func ons

Valua on

The instruments are valued according to their valua on rule. Typically, such instruments are quoted instruments and are specific contracts between the buyer and
seller. The price is quoted (fixed) by the seller of such contracts at the me of execu on and once the buyer agrees to the contract price and other terms and
condi ons of the contract, the deal is executed. Therefore, these instruments need not have a daily quote during the contract period.

Risk Posi on - Full exposure

The risk posi on (view) for valua on assumes the twin-win cer ficate (TWC) remains ac ve un l the end date and the view then decomposes the cer ficate into:

I. Long posi on on the underlying for the underlying quan ty set

II. A posi on in the underlying instrument (Risk equivalent to a long put op on on the underlying)

III. An offse ng cash posi on

Long underlying posi on

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

Underlying
Valua on
Category

Single Quan ty = Quan ty of positon of TWC / Cost based on RISK_STN_COST_RULE

system parameter

Price = Min(current market price, cap price^^, par cipa on price^^^)

Cap price^^ = Cost price * Cap levels

Par cipa on price^^^ is calculated only current market price >= Cost price.
Par cipa on price^^^ = Cost price + par cipa on level * (current market price –
cost price)

The cost price is determined based on RISK_STN_COST_RULE system parameter.

Average Quan ty = Quan ty of positon of TWC * ini al weights in each underlying

Basket instrument / Cost based on RISK_STN_COST_RULE system parameter

The other business logic is the same as for a single underlying instrument except
the price is computed for each posi on in the basket.

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the TWC is determined by the worst performing instrument. The other instruments
in the basket will be shown with price and cost set to 0 (the quan ty of the same
will not be 0 and is fetched from the underlying quan ty), while the quan ty of the
worst-of instrument is determined by:

Quan ty = Quan ty of positon of TWC/ Cost of the worst-of instrument based on

RISK_STN_COST_RULE system parameter.

The other business logic is the same as for a single underlying instrument.

Note: If there are 2 or more worst performing instruments, then equal weights
would be assigned to each of them.

Posi on in the underlying instrument

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

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Underlying
Valua on
Category

Single Quan ty = Quan ty of positon of TWC * -1 / Cost price^^

If knock-out date is null,

Price = current market price

Cost price^^ = (If current market price >= Cost price, use cost price as per
RISK_STN_COST_RULE system parameter)
Else,
Cost price + downside par cipa on level * (cost price – current market price)

If knock-out date is not null, then show the quan ty as above, with both the price
and cost set to 0.

Average Quan ty = Quan ty of positon of TWC * ini al weights in each underlying

Basket instrument * -1 / Cost price^^

The other business logic is the same as for a single underlying instrument except
the price is computed for each posi on in the basket.

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the TWC is determined by the worst performing instrument. The other instruments
in the basket will be shown with price and cost set to 0 (the quan ty of the same
will not be 0 and is fetched from the underlying quan ty), while the quan ty of the
worst-of instrument is determined by:

Quan ty = Quan ty of positon of TWC * -1/ Cost price of worst-of instrument^^

The other business logic is the same as for a single underlying instrument.

Note: If there are 2 or more worst performing instruments, then equal weights
would be assigned to each of them.

Cash posi on

An offse ng cash posi on will be shown in the currency of the cer ficate that is calculated by using the current value of the TWC adjusted for the market values of
the underlying posi on.

Risk Posi on - Delta exposure

The underlying posi on will be shown with the underlying quan ty * delta of the cer ficate. The delta for the TWC is given by the issuer (stored in instrument
chrono table). All other business logic (underlying posi ons pricing logic and cash posi on) is the same as for "Full exposure". If a delta is not available, then the
result would be the same as "Full exposure".

Journal

The Final Redemp on value of a Twin-Win depends on events occurring during the life me of the note or at final valua on/maturity date depending on the op on
style. These events are whether the note has been knocked out or not and whether it has ended below or above the strike price.

The system’s current date – which is the system date (SYSDATE()) -- is a key a ribute is spli ng the historical and future cashflows.

The trading day is derived from the calendar in the instrument table.

All cashflows except those of the final redemp on (e.g. coupons) will be similar to how those are generated for a simple bond (fixed income).

For Final redemp on cashflows:

Scenarios Journal of Liquidity

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Scenarios Journal of Liquidity

If the barrier has been knocked out As of maturity

(current date >= knocked-out date). date, the Final
Redemp on
is expected to
be:

Quote = 100

Quan ty = -
quan ty of
posi on * ( 1+
performance
of underlying)

If the barrier has not been knocked out (current date < As of maturity date, the Final
knocked-out date or knocked-out date is null) and if Redemp on is expected to be:
underlying instrument price is above strike price (below
exercise date is null) Quote = 100

Quan ty = - quan ty of posi on * (

1 + minimum of (cap level or
par cipa on level * underlying
performance)

-Q * [1+min(C, P * Δ%)]

If the barrier has not been knocked out (current date < As of maturity date, the Final
knocked-out date or knocked-out date is null) and if Redemp on is expected to be:
underlying instrument price is below strike price (below
exercise date is not null) Quote = 100

Quan ty = - quan ty of posi on * (1

+ absolute value of (par cipa on
level to the downside * underlying
performance)

-Q * [1+ABS(P(d) * Δ%)]

Example 5- Bonus Notes

The following provides an example of instrument se ng to manage bonus notes:

A ribute Descrip on

Instrument

Nature Fixed Income

Instrument Structured Product Standalone

Class

Sub-nature Bonus Note

Fixing Date Example: 5 business days before begin date

Price Quote/100
Calcula on
Rule

Op on Style Set to European or American in the context of Knock-out barriers.

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A ribute Descrip on

Underlying The underlying instrument type: Single Instrument; Average Basket or Worst-Of
Category Basket

Underlying In the case of single underlying instrument, references the applicable underlying
instrument to define the redeemed value to the investor at maturity.

Example: XYZ

Else (in the case of basket underlying), refer to Composi on sec on below

Exercise Strike price of the underlying instrument at maturity to define the redemp on
Quote value in the case of single underlying (else refer to Composi on sec on).

Example: $10

Exercise Strike price in percentage terms in the case of single underlying (else refer to
Quote % Composi on sec on)

Example: 100%

Barrier Barrier price rela ve to the Knock-out condi on in the case of single underlying
(else refer to Composi on sec on).

Example: $8.

Barrier % Barrier in percentage terms in the case of single underlying (else refer to
Composi on sec on)

Example: 80%

Barrier Defines the nature of the applicable barrier.

Nature
Example: Down & Out. If the underlying price is above the barrier at expira on,
the investor receives the rebate.

Par cipa on Level of par cipa on if the price of the underlying instrument is above the strike
Level but below the barrier.

Example: 90%. If the underlying price at maturity is 12, then the investor receives
10 + 2*90%=$11.80 per underlying unit.

Cap Level The maximum poten al profit that can be earned by the investor.

Bonus Level Defines the applicable bonus level price for payoff if the underlying price is below
strike but does not breach the barrier.

Example: $13

If the underlying price is:

$16, the investor receives a payoff based on 16-10

$9 and the barrier is not breached, the investor receives a payoff of 13-10
due to the bonus level

$9 and the barrier is breached, the investor receives a payoff of 10-9 due
to the Knock-out effect on the bonus schema

Composi on (in the case of a Basket underlying)

Weight The weight of each underlying instrument in an Average Basket

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A ribute Descrip on

Instrument References the applicable underlying instruments in a basket underlying to define

the redeemed value to the investor at maturity.

Example: ABC; EFG; XYZ

Exercise Strike price of each underlying instrument in a basket.

Quote
Example: $10

Exercise Strike price in percentage terms in the case of each underlying in a basket.
Quote %
Example: 100%

Barrier Barrier price of each underlying in a basket.

Example: $8

Barrier % Barrier in percentage terms for each underlying in a basket

Example: 80%

Barrier Defines the nature of the applicable barrier.

Nature
Example: Down & Out.

Opera ons
Bonus Notes are bought and sold using the ‘buy’ and ‘sell’ opera ons.

Business Func ons

Valua on

The instruments are valued according to their valua on rule. Typically, such instruments are quoted instruments and are specific contracts between the buyer and
seller. The price is quoted (fixed) by the seller of such contracts at the me of execu on and once the buyer agrees to the contract price and other terms and
condi ons of the contract, the deal is executed. Therefore, these instruments need not have a daily quote during the contract period.

Risk Posi on - Full exposure

The risk posi on (view) for valua on assumes the bonus notes (BN) remains ac ve un l the end date and the view then decomposes the note into:

I. Long posi on on the underlying for the underlying quan ty set

II. A posi on in the underlying instrument (Risk equivalent to a long put op on on the underlying)

III. An offse ng cash posi on

Long underlying posi on

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

Underlying
Valua on
Category

Single Quan ty = Quan ty of posi on of BN / Cost based on RISK_STN_COST_RULE

system parameter

Price = Min(current market price, cap price^^, par cipa on price^^^)

Cap price^^ = Cost price * Cap levels

Par cipa on price^^^ is calculated only current market price >= Cost price.
Par cipa on price^^^ = Cost price + par cipa on level * (current market price –
cost price)

The cost price is determined based on RISK_STN_COST_RULE system parameter.

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Underlying
Valua on
Category

Average Quan ty = Quan ty of posi on of BN * ini al weights in each underlying

Basket instrument/ Cost based on RISK_STN_COST_RULE system parameter

The other business logic is the same as for a single underlying instrument except
the price is computed for each posi on in the basket.

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the BN is determined by the worst performing instrument. The other instruments
in the basket will be shown with price and cost set to 0 (the quan ty of the same
will not be 0 and is fetched from the underlying quan ty), while the quan ty of the
worst-of instrument is determined by:

Quan ty = Quan ty of posi on of BN / Cost of the worst-of instrument based on

RISK_STN_COST_RULE system parameter.

The other business logic is the same as for a single underlying instrument.

Note: If there are 2 or more worst performing instruments, then equal weights
would be assigned to each of them.

Posi on in the underlying instrument

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

Underlying
Valua on
Category

Single Quan ty = Quan ty of posi on of BN * -1 / Bonus price^^

If knock-out date is null,

Price = current market price

Bonus price^^ = Cost price * Bonus levels

The cost price of the underlying instrument is the bonus price.

If knock-out date is not null, then show the quan ty as above, with both the price
and cost set to 0.

Average Quan ty = Quan ty of posi on of BN * ini al weights in each underlying

Basket instrument * -1 / Bonus price^^

The other business logic is the same as for a single underlying instrument except
the price is computed for each posi on in the basket.

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the BN is determined by the worst performing instrument. The other instruments
in the basket will be shown with price and cost set to 0 (the quan ty of the same
will not be 0 and is fetched from the underlying quan ty), while the quan ty of the
worst-of instrument is determined by:

Quan ty = Quan ty of posi on of BN * -1/ Bonus price of worst-of instrument^^

The other business logic is the same as for a single underlying instrument.

Note: If there are 2 or more worst performing instruments, then equal weights
would be assigned to each of them.

Cash posi on

An offse ng cash posi on will be shown in the currency of the note that is calculated by using the current value of the BN adjusted for the market values of the
underlying posi on.

Risk Posi on - Delta exposure

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The underlying posi on will be shown with the underlying quan ty * delta of the note. The delta for the BN is given by the issuer (stored in instrument chrono
table). All other business logic (underlying posi ons pricing logic and cash posi on) is the same as for "Full exposure". If a delta is not available, then the result would
be the same as "Full exposure".

Journal

The Final Redemp on value of a Bonus Note depends on events occurring during the life me of the note or at final valua on/maturity date depending on the op on
style. These events are whether the note has been knocked out or not and whether it has ended below or above the strike price.

The system’s current date – which is the system date (SYSDATE()) -- is a key a ribute is spli ng the historical and future cashflows.

The trading day is derived from the calendar in the instrument table.

All cashflows except those of the final redemp on (e.g. coupons) will be similar to how those are generated for a simple bond (fixed income).

For Final redemp on cashflows:

Scenarios Journal of Liquidity

If the barrier has been knocked out As of

(current date >= knocked-out date). maturity
date, the
Final
Redemp on
is expected
to be:

Quote = 100

Quan ty = -
quan ty of
posi on * (
1+
performance
of
underlying)

If the barrier has not been knocked out (current date < As of maturity date, the Final
knocked-out date or knocked-out date is null) and if Redemp on is expected to be:
underlying instrument price is above strike price (below
exercise date is null) Quote = 100

Quan ty = - quan ty of posi on * (

1 + minimum of (cap level or
par cipa on level * underlying
performance)

-Q * [1+min(C, P * Δ%)]

If the barrier has not been knocked out (current date < As of maturity date, the Final
knocked-out date or knocked-out date is null) and if Redemp on is expected to be:
underlying instrument price is below strike price (below
exercise date is not null) Quote = 100

Quan ty = - quan ty of posi on *

bonus level

Example 6- Airbag Cer ficates

The following provides an example of instrument se ng to manage bonus notes:

A ribute Descrip on

Instrument

Nature Fixed Income

Instrument Structured Product Standalone

Class

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A ribute Descrip on

Sub-nature Airbag Cer ficate

Fixing Date Example: 5 business days before begin date

Price Quote/100
Calcula on
Rule

Op on Style Set to European or American in the context of Knock-out barriers.

Underlying Set the underlying type: Single Instrument; Average Basket or Worst-Of Basket
Category

Underlying In the case of single underlying, references the applicable underlying instrument
to define the redeemed value to the investor at maturity.

Example: XYZ

Else (in the case of basket underlying), refer to Composi on sec on below

Exercise Strike price of the underlying instrument at maturity to define the redemp on
Quote value in the case of single underlying (else refer to Composi on sec on).

Example: $10

Exercise Strike price in percentage terms in the case of single underlying (else refer to
Quote % Composi on sec on)

Example: 100%

Barrier Barrier price rela ve to the Knock-out condi on in the case of single underlying
(else refer to Composi on sec on).

Example: $8

Barrier % Barrier in percentage terms in the case of single underlying (else refer to
Composi on sec on)

Example: 80%

Barrier Defines the nature of the applicable barrier.

Nature
Example: Down & Out. If the underlying price is above the barrier at expira on,
the investor receives the rebate.

Par cipa on Level of par cipa on if the price of the underlying is above the strike but below
Level the barrier.

Example: 90%. If the underlying price at maturity is 12, then the investor receives
10 + 2*90%=$11.80 per underlying unit.

Cap Level The maximum poten al profit that can be earned by the investor.

Composi on (in the case of a Basket underlying)

Weight The weight of each underlying instrument in an Average Basket

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A ribute Descrip on

Instrument References the applicable underlying instruments in a basket underlying to define

the redeemed value to the investor at maturity.

Example: ABC; EFG; XYZ

Exercise Strike price of each underlying instrument in a basket.

Quote
Example: $10

Exercise Strike price in percentage terms in the case of each underlying in a basket.
Quote %
Example: 100%

Barrier Barrier price of each underlying in a basket.

Example: $8

Barrier % Barrier in percentage terms for each underlying in a basket

Example: 80%

Barrier Defines the nature of the applicable barrier.

Nature
Example: Down & Out.

Opera ons
Airbag Cer ficates are bought and sold using the ‘buy’ and ‘sell’ opera ons.

Business Func ons

Valua on

The instruments are valued according to their valua on rule. Typically, such instruments are quoted instruments. Generally, such instruments are specific contracts
between the buyer and seller. The price is quoted (fixed) by the seller of such contracts at the me of execu on and once the buyer agrees to the contract price and
other terms and condi ons of the contract, the deal is executed. Therefore, these instruments need not have a daily quote during the contract period.

Risk Posi on - Full exposure

The risk posi on (view) for valua on assumes the air bag cer ficate (ABC) remains ac ve un l the end date and the view then decomposes the cer ficate into:

I. A zero coupon bond posi on

II. A posi on in the underlying instrument (Risk equivalent to a long call op on on the underlying)

III. A posi on in the underlying instrument (Risk equivalent to a short put op on on the underlying) with strike at airbag levels

IV. An offse ng cash posi on

Zero coupon bond

The business logic is same as for the bond component of Capital Protec on notes with the only excep on being no capital protec on a ached to ABC.

Posi on in the underlying instrument - equivalent to a long call op on

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

Underlying
Valua on
Category

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Underlying
Valua on
Category

Single Quan ty = Quan ty of positon of ABC/ Cost based on RISK_STN_COST_RULE

system parameter

If knock-out date is null,

Price = Min(current market price, par cipa on price^^)

Par cipa on price^^ is calculated only current market price >= Cost price.
Par cipa on price^^ = Cost price + par cipa on level * (current market price –
cost price)

If knock-out date is not null,

Price = (cost price/ airbag price^^^) * Current market price

Airbag price^^^ = Cost price * Barrier % (indicates airbag levels)

The cost price is determined based on RISK_STN_COST_RULE system parameter.

Average Quan ty = Quan ty of positon of ABC * ini al weights in each underlying

Basket instrument / Cost based on RISK_STN_COST_RULE system parameter

The other business logic is the same as for a single underlying instrument except
the price is computed for each posi on in the basket.

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the ABC is determined by the worst performing instrument. The other instruments
in the basket will be shown with price and cost set to 0 (the quan ty of the same
will not be 0 and is fetched from the underlying quan ty), while the quan ty of the
worst-of instrument is determined by:

Quan ty = Quan ty of positon of ABC/ Cost of the worst-of instrument based on

RISK_STN_COST_RULE system parameter.

The other business logic is the same as for a single underlying instrument.

Note: If there are 2 or more worst performing instruments, then equal weights
would be assigned to each of them.

Posi on in the underlying instrument - equivalent to a short put op on

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

Underlying
Valua on
Category

Single Quan ty = Quan ty of positon of ABC / Airbag price^^

If knock-out date is null,

Price = max(current market price, actual cost price^^^)

Airbag price^^ = Cost price * Barrier % (indicates airbag levels)

The cost price of the underlying instrument is determined using the airbag price^^
while the actual cost price^^^ is the price based on RISK_STN_COST_RULE system
parameter.

If knock-out date is not null, then show the quan ty as above, with both the price
and cost set to 0.

Average Quan ty = Quan ty of positon of ABC * ini al weights in each underlying

Basket instrument / Airbag price^^

The other business logic is the same as for a single underlying instrument except
the price is computed for each posi on in the basket.

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Underlying
Valua on
Category

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the ABC is determined by the worst performing instrument. The other instruments
in the basket will be shown with price and cost set to 0 (the quan ty of the same
will not be 0 and is fetched from the underlying quan ty), while the quan ty of the
worst-of instrument is determined by:

Quan ty = Quan ty of positon of ABC/ Airbag price of worst-of instrument^^

The other business logic is the same as for a single underlying instrument.

Note: If there are 2 or more worst performing instruments, then equal weights
would be assigned to each of them.

Cash posi on

An offse ng cash posi on will be shown in the currency of the cer ficate that is calculated by using the current value of the ABC adjusted for the market values of
the bond and underlying posi ons.

Risk Posi on - Delta exposure

The underlying posi on will be shown with the underlying quan ty * delta of the cer ficate. The delta for the DC is given by the issuer (stored in instrument chrono
table). All other business logic (bond, underlying posi ons pricing logic and cash posi on) is the same as for "Full exposure". If a delta is not available, then the result
would be the same as "Full exposure".

Journal

The Final Redemp on value of an Airbag Cer ficates depends on events occurring during the life me of the note or at final valua on/maturity date depending on
the op on style. These events are whether the note has been knocked out or not and whether it has ended below or above the strike price.

The system’s current date – which is the system date (SYSDATE()) -- is a key a ribute is spli ng the historical and future cashflows.

The trading day is derived from the calendar in the instrument table.

All cashflows except those of the final redemp on (e.g. coupons) will be similar to how those are generated for a simple bond (fixed income).

For Final redemp on cashflows:

Scenarios Journal of Liquidity

If the barrier has As of maturity date, the Final

been knocked out Redemp on is expected to
(current date >= be:
knocked-out date).
Quote = 100

Quan ty = - quan ty of
posi on * ( 1+ performance
of underlying)

If underlying instrument price is above As of maturity date, the Final Redemp on is

strike price (below exercise date is null) expected to be:

Quote = 100

Quan ty = - quan ty of posi on * ( 1 + minimum

of (cap level or par cipa on level * underlying
performance)

-Q * [1+min(C, P * Δ%)]

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Scenarios Journal of Liquidity

If underlying instrument price is below As of maturity date, the Final Redemp on is

strike price (below exercise date is not null) expected to be:

Quote = 100

Quan ty = - quan ty of posi on * ( 1 + minimum

of (0 or Airbag mul plier + underlying
performance)

-Q * [1+min(0, AM + Δ%)]

Where Airbag Mul plier (AM) = (Underlying

Price/Strike) * (AF - 1)

And Airbag Factor (AF) = Strike / Barrier

Example 7- Mini-Futures Turbo

The following provides an example of instrument se ng to manage Mini-Futures Turbo:

Mini-Futures (Turbos) are open-ended debt instruments that are similar to a leveraged straight long call op on (long turbo) or short call op on (short turbo)

A Discount Cer ficate may have any combina on of terms and condi ons, the most basic of which being exercise price and knock in barrier (stop loss) and leverage.

The synthe c composi on of a Mini Futures is as follows:

- Leverage amount of a long at-the-money call in the case of a long posi on in the Mini Futures

- Leverage amount of short at-the-money call in the case of a short posi on in the Mini Futures

A ribute Descrip on

Instrument

Nature Exo c Op ons

Instrument Structured Product Standalone

Class

Sub-nature Mini-Futures - Turbo

End Date Not specified

Fixing Date Example: 5 business days before begin date

Price Quote/100
Calcula on
Rule

Op on Set to European or American in the context of Knock-out barriers.

Style

Underlying Set the underlying type: Single Instrument; Average Basket or Worst-Of Basket
Category

Term Contract Event

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A ribute Descrip on

Pay off Long or Short

Nature

Underlying In the case of single underlying, references the applicable underlying instrument to
define the redeemed value to the investor at maturity.

Example: XYZ

Else (in the case of basket underlying), refer to Composi on sec on below

Ini al Applicable for Single underlying. This determines the pay-out of the note.
Fixing Price
Example: $10

Else (in the case of basket underlying), refer to Composi on sec on below

Exercise Strike price of the underlying instrument at maturity to define the redemp on
Quote value in the case of single underlying (else refer to Composi on sec on).

Example: $10

Exercise Strike price in percentage terms in the case of single underlying (else refer to
Quote % Composi on sec on)

Example: 100%

Lower Barrier price rela ve to the Knock-out condi on in the case of single underlying
Barrier (else refer to Composi on sec on).

Example: $14.

Barrier Defines the nature of the applicable barrier.

Nature
Example: Down & Out - for long. Up & Out - for short.

Leverage Leverage applied to the Mini-Futures

Composi on (in the case of a Basket underlying)

Weight The weight of each underlying instrument in an Average Basket

Instrument References the applicable underlying instruments in a basket underlying to define

the redeemed value to the investor at maturity.

Example: ABC; EFG; XYZ

Exercise Strike price of each underlying instrument in a basket.

Quote
Example: $10

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A ribute Descrip on

Exercise Strike price in percentage terms in the case of each underlying in a basket.
Quote %
Example: 100%

Barrier Barrier price of each underlying in a basket.

Example: $14

Barrier % Barrier in percentage terms for each underlying in a basket

Example: 140%

Barrier Defines the nature of the applicable barrier.

Nature
Example: Down & Out- for long. Up & Out - for short..

Opera ons
Mini-Futures are bought and sold using the ‘buy’ and ‘sell’ opera ons.

Business Func ons

Valua on

The instruments are valued according to their valua on rule. Typically, such instruments are quoted instruments. Generally, such instruments are specific contracts
between the buyer and seller. The price is quoted (fixed) by the seller of such contracts at the me of execu on and once the buyer agrees to the contract price and
other terms and condi ons of the contract, the deal is executed. Therefore, these instruments need not have a daily quote during the contract period.

Risk Posi on - Full exposure

This method assumes that the value of Mini Future on the valua on date provided the stop loss is not triggered (as they can be closed at any date). If the stop loss is
triggered, the posi on is squared off.

Find the financing level^ for each instrument (for all categories) =

Cost price – (Cost price/ Leverage)

Mini future price for each instrument^^ = Cost price – financing level

Cost price is retrieved using RISK_STN_COST_RULE system parameter.

Long Mini Futures - equivalent to a long call op on

Underlying posi on

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

Underlying
Valua on
Category

Single Quan ty = Quan ty of positon of Mini Futures

If knock-out date is null,

Market Value = (Price on the valua on date – Financial level^)* Quan ty

Else,

Market Value = (Stop loss price – Financial level^)* Quan ty

The cost price for the posi on is the mini future price and the stop loss price is the
barrier price.

Average Quan ty = Quan ty of positon of each instrument of Instrument composi on of

Basket Mini Futures

The other business logic is the same as for a single underlying instrument except
the price is computed for each posi on in the basket.

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Underlying
Valua on
Category

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the ABC is determined by the worst performing instrument. The other instruments
in the basket will be shown with price and cost set to 0 (the quan ty of the same
will not be 0 and is fetched from the underlying quan ty), while the quan ty of the
worst-of instrument is determined by:

Quan ty = Quan ty of positon of Mini Futures

The other business logic is the same as for a single underlying instrument. Note: If
there are 2 or more worst performing instruments, then equal weights would be
assigned to each of them.

Cash posi on

An offse ng cash posi on will be shown in the currency of the cer ficate that is calculated by using the current value of the cer ficate adjusted for the market
values of the underlying posi ons.

Short Mini Futures - equivalent to a short call op on

Underlying posi on

Based on the underlying type category (Single/ Average Basket/ Worst-of Basket), the quan ty of the underlying posi on is derived:

Underlying
Valua on
Category

Single Quan ty = Quan ty of positon of Mini Futures * -1

If knock-out date is null,

Market Value = (Price on the valua on date – Financial level^)* Quan ty

Else,

Market Value = (Stop loss price – Financial level^)* Quan ty

The cost price for the posi on is the mini future price and the stop loss price is the
barrier price.

Average Quan ty = Quan ty of positon of each instrument of Instrument composi on of

Basket Mini Futures * -1

The other business logic is the same as for a single underlying instrument except
the price is computed for each posi on in the basket.

Worst-of There would be more than one underlying instrument and each instrument will be
Basket shown. However, there would be no weights in this basket and the risk exposure of
the ABC is determined by the worst performing instrument. The other instruments
in the basket will be shown with price and cost set to 0 (the quan ty of the same
will not be 0 and is fetched from the underlying quan ty), while the quan ty of the
worst-of instrument is determined by:

Quan ty = Quan ty of positon of Mini Futures * -1

The other business logic is the same as for a single underlying instrument

Note: If there are 2 or more worst performing instruments, then equal weights
would be assigned to each of them.

Cash posi on

An offse ng cash posi on will be shown in the currency of the cer ficate that is calculated by using the current value of the cer ficate adjusted for the market
values of the underlying posi ons.

Risk Posi on - Delta exposure

The underlying posi on will be shown with the underlying quan ty * delta of the cer ficate. The delta is given by the issuer (stored in instrument chrono table). All
other business logic (underlying posi ons pricing logic and cash posi on) is the same as for "Full exposure". If a delta is not available, then the result would be the
same as "Full exposure".

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Journal

Mini-Futures have an unspecified/unknown maturity date and as such, no final redemp on cashflows are expected in the journal of liquidity.

Example 8- Dual Currency and Triple Currency Investments

A ribute Descrip on

Instrument (Main)

Nature Money Market

Instrument Structured Product Standalone

Class

Sub-nature Accumulator or Decumulator

Price Quote
Calcula on
Rule Price = 1

Begin date The life period of the instrument.

and end
date

Fixing date The first se lement date. This date is always a er the begin date and before the
end date. It must be always on a business day (of the calendar, associated with the
instrument).

Reference The investment currency of the DCI/TCI

Currency
Example: USD

Interest Coupon Rate of the Investment

Rate

Compound The accumula on or decumula on frequency (for informa on purposes only).

Frequency
Example: 1 Day for a daily

Payment Sets the frequency of the se lement of the accumula on or decumula on done
Frequency (for informa on purposes only).

Example: 1 Month

Convert Used to iden fy whether Principal only or Principal + Interest are converted to the
Interest alternate currency at redemp on date.

Example: Principal only

Fixing The currency in which the investment will be redeemed at maturity; whether it is
Currency the investment currency or the alternate currency (or one of the alternate
currencies in the case of a TCI)

Composi on Instrument #1 (Money Market)

Nature Money Market

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A ribute Descrip on

Price Price = 1
Calcula on
Rule

Begin date Same as for the main instrument

and end
date

Reference Same as for the main instrument

Currency

Interest Same as for the main instrument

Rate

Compound Same as for the main instrument

Frequency

Payment Same as for the main instrument

Frequency

Composi on Instrument #2 (FX Exo c Op on 1)

Nature Exo c Op on

Price Quote
Calcula on
Rule

Begin date Same as for the main instrument

and end
date

Reference Same as for the main instrument

Currency

Term Event #2

Validity The date from which is event is valid.

Date

Underlying References the alternate currency of the DCI (first alternate currency of the TCI.)

Example: EUR

Op on Defines the class of the composi on op on. Always defined as a Put.

class

Op on The style of the underlying op on:

Style
Example: European

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A ribute Descrip on

Exercise Strike price of the put op on.

Quote
Example: 1.130840

Exercise Strike price in percentage terms

Quote %
Example: 100%

Barrier Barrier level if applicable

Barrier % Barrier level in percentage terms

Composi on Instrument #3 (FX Exo c Op on 2) -- Applies for TCI's only

Nature Exo c Op on

Price Quote
Calcula on
Rule

Begin date Same as for the main instrument

and end
date

Reference Same as for the main instrument

Currency

Term Event #3

Validity The date from which is event is valid.

Date

Underlying References the second alternate currency in the case of a TCI

Example: GBP

Op on Defines the class of the composi on op on. Always defined as a Put.

class

Op on The style of the underlying op on:

Style
Example: European

Exercise Strike price of the put op on.

Quote
Example: 1.30595

Exercise Strike price in percentage terms

Quote %
Example: 100%

Opera ons
DCI's and TCI's are bought and sold using the ‘buy’ and ‘sell’ opera ons.

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Business Func ons

Valua on

DCI's and TCI's are valued according to their valua on rule. Typically, such instruments are either quoted or priced at 1 (similar to simple Money Market
instruments). The system parameter DCI_DEF_INSTR_VAL_RULE will be used to specify how these investments are expected to be priced.

Risk Posi on - Full exposure

The instrument composi on as described above reflects the risk nature of the DCI/TCI contract. The risk posi on (view) for valua on assumes the contract remains
ac ve un l the end date and the view then decomposes the contract into a posi on in the instruments in the Composi on with an offse ng cash posi on.

In risk posi on (in ‘full exposure’ view), the posi on of a DCI/ TCI will be decomposed into the following:

Posi on Amounts

Long Quan ty = quan ty of DCI/TCI posi on

Posi on in
equivalent
Money
Market

Investment If the op on in DCI or one of the op ons in TCI have lower barrier level set and
Currency knock-in date is null or 0 (meaning the op on is not yet knocked-in) or knock-out
date is present (meaning op on is knocked-out) on current (Valua on) date, then
no currency posi on would be shown for the related op on,

Else

Decomposi on according to method described in sec on Op on on currency of

the Short Posi on in the Currency Put op on with the following values

Contract size = 1

Quan ty =

If Convert Interest = 1 (Principal Only)

Alternate
Currency
Quan ty * Price

If Convert Interest = 2 (Principal + Interest)

Quan ty * Price + Coupon

Valua on Rule = Theore cal

Quote = Assumed to be computed as per theore cal valua on model (using

keywords AA_BS_OPT or AA_CRR_OPT)

For DCI instrument posi ons (with a single op on a ached in composi on) all amounts will be fully assigned to the single op on. For TCI posi on, the Market Value
will be equally split to the 2 linked op ons in the composi on table

Risk Posi on - Delta exposure

The delta exposure Risk View will be similar to Risk View according to the full exposure with the excep on that the Currency op ons will be decomposed as per the
delta method instead.

Journal

At maturity date, based on the fixing date and fixing currency, TAP determines if the main instrument contract will be repaid in the investment currency or in one of
the alternate currencies.

Journal flows should be generated for any DCI/TCI instrument -- nature_e = 5 and sub_nat_e IN(85,86) -- opera ons regardless of whether and how the Composi on
(instr_compo) is defined (whether the MM and Op ons are in the composi on or not, i.e. the Core Instrument Defini on in previous sec on is sufficient.) This
requirement applies to Journal func on only (and not to Valua on func on)

As for standard money market instruments, there Journal of Liquidity will generate 2 opera ons:

1. A sell opera on to close the posi on in the contract

2. An income opera on for the interest payment

Scenarios Journal of Liquidity opera ons

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Scenarios Journal of Liquidity opera ons

Investment redeemed in investment currency Opera on 1: Final Redemp on (Sell Transac on)
(Fixing Currency equal to Reference Currency) with the following characteris cs:
OR (Fixing date a er current date)
Quan ty = Quan ty from opera on

Price/Rate = 1

Currency = Currency from main instrument

(=Fixing Currency if not null)

Opera on 2: Income opera on with the

following characteris cs:

Quan ty = Quan ty from opera on

Price/Rate = accrued coupon rate

Currency = Currency from main instrument

(=Fixing Currency if not null)

Investment redeemed in alternate currency Opera on 1: Final Redemp on (Sell Transac on)
(Fixing Currency is different from Reference with the following characteris cs:
Currency) and Principal-only converted at
redemp on (Convert Interest = Principal Quan ty = Quan ty from original opera on
Only)
Price/Rate = 1

Currency = Fixing Currency

Amount = Quan ty converted* to Fixing

Currency using the strike price of the op on,
which will be executed (i.e. the op on, whose
underlying currency is equal to the fixing
currency).

Opera on 2: Income opera on with the

following characteris cs:

Quan ty = Quan ty from original opera on

Price/Rate = accrued coupon rate

Currency = Currency from main instrument

NOTE: that conversion has to take into

considera on the direc on of the strike price
(FX rate) quote direc on

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Scenarios Journal of Liquidity opera ons

Investment redeemed in alternate currency Opera on 1: Final Redemp on (Sell Transac on)
(Fixing Currency is different from Reference with the following characteris cs:
Currency) and Principal + Interest converted
at redemp on (Convert Interest = Principal + Quan ty = Quan ty from original opera on
Interest)
Price/Rate = 1

Currency = Fixing Currency

Amount = Quan ty converted* to Fixing

Currency by the strike price of the op on, which
will be executed (i.e. the op on, whose
underlying currency is equal to the fixing
currency).

Opera on 2: Income opera on with the

following characteris cs:

Quan ty = Quan ty from original opera on

Price/Rate = accrued coupon rate1

Currency = Fixing Currency

Amount = (Quan ty * Price/Rate) converted*

to Fixing Currency by the strike price of the
op on, which will be executed (i.e. the op on,
whose underlying currency is equal to the fixing
currency).

NOTE: that conversion has to take into

considera on the direc on of the strike price
(FX rate) quote direc on

Example 9- Accumulator and Decumulator

The accumulator is a type of structured product that accumulates (or purchases) an instrument for a strike price over a period of me, with an accumula on
frequency (daily) and a se lement frequency of the accumula on done for a sub-period (monthly). The decumulator is the opposite of accumulator where the
instrument is decumulated (or sold).

From a structural perspec ve, Accumulators / Decumulators present a payoff similar to a set of short put / call op ons with the same strike price of an underlying
instrument, with an expira on date of each op on that matches an accumula on/ decumula on date.

This product can include addi onal condi ons such as a barrier (both upper and lower), leverage and protected date.

The following provides an example of instrument se ng to manage an accumulator / decumulator:

A ribute Descrip on

Instrument

Nature Exo c Op on

Instrument Structured Product Standalone

Class

Sub-nature Accumulator or Decumulator

Price Quote
Valua on
Rule This price must be provided by the price history. Front Office – PM does not have
the capability to price it.

Begin date Sets the life period of the instrument.

and end
date

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A ribute Descrip on

Fixing date Sets the first se lement date. This date is always a er the begin date and before
the end date. It must be always on a business day (of the calendar, associated with
the instrument).

Compound Sets the accumula on or decumula on frequency (for informa on purposes only).
Frequency
Example: 1 Day for a daily

Payment Sets the frequency of the se lement of the accumula on or decumula on done
Frequency (for informa on purposes only).

Example: 1 Month

Knock-in Used to capture the date (if applicable) when the instrument was knocked in (first
Date me the KI barrier was breached: either from below for Up/In or from above for
Down/In barrier types). This value is populated by the back-end and is not
calculated by TAP.

Knock-out Used to capture the date (if applicable) when the instrument was knocked out (first
Date me the KO barrier was breached: either from below for Up/Out or from above for
Down/Out barrier types). This value is populated by the back-end and is not
calculated by TAP.

Term Event

Validity The date from which is event is valid.

Date

Underlying References the applicable underlying instrument to define the redeemed value to
the investor at maturity.

Example: XYZ

Underlying Sets the number of underlying instrument units to buy or sell for each accrual
Quan ty accumula on or decumula on.

Example: 25

Exercise Forward price applicable for the accumulator or decumulator.

Quote
Example: $8

Exercise Exercise quote in % of current market price of the underlying instrument.

Quote %

Currency The currency of the exercise quote.

Pay Off Accumulator or Decumulator.

Nature

Upper Upper barrier price rela ve to the Knock-out condi on for the accumulator and
Barrier decumulator.

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A ribute Descrip on

Upper Defines the nature of the applicable upper barrier.

Barrier
Nature Example: For accumulator - Up & Out. If the underlying instrument price moves up,
the accumulator is terminated.

Example: For decumulator – Down & Out. If the underlying instrument price moves
down, the decumulator is terminated.

Lower Lower barrier price rela ve to the Knock-in condi on for the accumulator and
Barrier decumulator.

Barrier Defines the nature of the applicable lower barrier.

Nature
Example: For accumulator - Up & In. If the underlying instrument price moves up,
the accumulator is ini ated.

Example: For decumulator - Down & In. If the underlying instrument price moves
down, the decumulator is ini ated.

Leverage Defines a ra o applied to the underlying instrument quan ty if the underlying

(gearing) instrument price moves below (in case of accumulator) or above (in case of
decumulator) the strike price for a day.

Example: Leverage is 2. If one day the underlying instrument price moves below
(for accumulator) or above (for decumulator) and if underlying quan ty is 25, the
quan ty to buy or sell becomes 50=25*2.

Protected Date a er the begin date.

Date
This implies that if the underlying instrument price moves above (for accumulator)
or below (for decumulator) the barrier before this date, the accumulator /
decumulator is liquidated at this date but the investors buy the quan ty
accumulated/ decumulated between the begin date and protected date. This
guarantees a minimum value of accumula on or decumula on.

Total Total quan ty of the underlying instrument that can be accumulated or

Quan ty decumulated un l the maturity date if there is no Knock-out. It represents the
maximum possible quan ty of accumula on or decumula on.

Opera ons
The accumulator and decumulator instruments are bought and sold using the ‘buy’ and ‘sell’ opera ons.

Business Func ons

Valua on

Accumulator and decumulator instruments are valued according to their valua on rule. Typically, such instruments are quoted instruments and are specific contracts
between the buyer and seller. The price is quoted (fixed) by the seller of such contracts at the me of execu on and once the buyer agrees to the contract price and
other terms and condi ons of the contract, the deal is executed. Therefore, these instruments need not have a daily quote during the contract period.

Risk Posi on - Full exposure

Typically, the risk nature of this kind of instrument is the risk nature of the underlying instrument. The risk posi on (view) for valua on assumes the contract remains
ac ve un l the end date and the view then decomposes the contract into a posi on in the underlying instrument with an offse ng cash posi on.

In risk posi on (in ‘full exposure’ view), the underlying posi on with the underlying quan ty as the remaining quan ty ll maturity will be shown. One of the
following scenarios can occur:

Scenarios Full exposure view

If knock-out date < valua on date with valua on date = any No underlying posi on
se lement date with no protected date feature enabled in the would be shown.
contract or if the contract’s knock-in date has not occurred
before the valua on date.

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Scenarios Full exposure view

If knock-out date < valua on date (ini al date in ‘valua on’ No underlying posi on
domain) with protected date feature enabled in the contract and would be shown.
protected date < valua on date.

If the valua on date is between the begin date and the end date The outstanding part of the
of the contract and if the valua on date is same as any life me of the contract is
se lement date. determined by:
Life me part = (end date –
valua on date)/ (end date –
begin date)
Remaining quan ty =
Life me part * Total quan ty
Market value = Remaining
quan ty * current market
price of the underlying
posi on
Cost price (per unit of
underlying) = exercise quote
Cost value = Remaining
quan ty * cost price

If the valua on date is between the begin date and the end date The outstanding part of the
of the contract and if the valua on date is not the same as any life me of the contract is
se lement date and knock-out date is null or knock-out date is determined by:
greater than the valua on date. Life me part = (end date -
previous se lement date)/
(end date – begin date)

The remaining quan ty,

market value, cost price and
cost value calcula on logic is
the same as above.

If the valua on date is between the begin and the end date of The outstanding part of the
the contract and if the valua on date and knock-out date is the life me of the contract is
same which is not the same as any se lement date (with a determined by:
protected date defined). Life me part = (protected
date – previous se lement
date)/ (end date – begin
date)

The remaining quan ty,

market value, cost price and
cost value calcula on logic is
the same as above.

If the valua on date is prior to the begin date of the contract. The outstanding part of the
life me of the contract is
determined by:
Life me part = 1

The remaining quan ty,

market value, cost price and
cost value calcula on logic is
the same as above.

An offse ng cash posi on will be shown in the currency of the accumulator / decumulator that is calculated as the difference between the market value of posi on
as per accoun ng view minus the market value derived above in any of the scenarios.

Risk Posi on - Delta exposure

The underlying posi on will be shown with the underlying quan ty * delta of the op on (Accumulator is equivalent to short put op on while the decumulator is
equivalent to short call op on. The delta for both the cases is not calculated by the TAP financial server and must be available in the Instrument Chrono table) as the
remaining quan ty ll maturity. All other business logic is the same as for Full exposure. If a delta is not available, then the result would be the same as "Full
exposure".

Journal

A series of se lement dates for the accumulator / decumulator which falls between the ‘Reference Date’ (inclusive) and ‘Final Date’ (inclusive) is created. The dates
are based on the fixing date (which is the first se lement date – this could be a date prior or a er the reference date) and are based on the payment frequency unit.
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The subsequent se lement dates are created using the instrument's calendar. If there is no specific calendar linked to the instrument, then the system calendar is
used. The ‘Reference Date’ and ‘Final Date’ can be fetched from ‘Reference Date’, ‘Final Date’ a ributes of the ‘Domain – Journal’ respec vely.

If the contract has been knocked out between the ‘Reference Date’ and ‘Final Date’, then the series of dates are created un l the se lement date immediately a er
the knock-out date.

The system’s current date – which is the system date (SYSDATE()) -- is a key a ribute in spli ng the historical and future cashflows.

The trading day is derived from the calendar in the instrument table.

For each date within a se lement period,

Accumulator: a ‘Buy’ opera on is created for the underlying instrument using the underlying instrument quan ty, gearing
(used only if the price of the underlying is below the exercise quote) and the exercise quote. The cash ou lows from this
opera on (a buy opera on results in cash ou lows – outage of cash) will be reflected on the Journal page based on the
se lement dates. Hence, the cashflows would be nega ve.

Decumulator: a ‘Sell’ opera on is created for the underlying instrument using the underlying instrument quan ty, gearing
(used only if the price of the underlying is above the exercise quote) and the exercise quote. The cash inflows from this
opera on (a sell opera on results in cash inflows – intake of cash) will be reflected on the Journal page based on the
se lement dates. Hence, the cashflows would be posi ve.

Scenarios Full exposure view

If final Date is less than the No cashflows or quan ty would be shown for this posi on.
begin date of the accumulator /
decumulator or knock-in date >
final Date or no knock-in has
occurred before the current
date.

If end Date >= final Date >= Quan ty for each trading day within a se lement period
current date > knock-in date >= star ng from the knock-in date to the current date where the
begin date > reference Date price of the underlying instrument is higher or equal to the
and no knock out event has exercise quote and for each trading day from current date to
occurred. Final Date (a) = Underlying quan ty

Quan ty for each trading day within a se lement period

between the knock-in date and the current date where the
price of the underlying instrument is lower than the exercise
quote (b) = Underlying quan ty * gearing

Based on the number of trading days in each se lement

period, use the quan ty from (a) and (b) and calculate the
cashflows as quan ty * exercise quote. Sum the quan es and
cashflows for each se lement period.

If end Date >= final Date >= Quan ty/ Cashflows on knock-out date = 0
current date > knock-out date >
knock-in date = begin date = Quan ty for each trading day within a se lement period from
reference date and no the knock-in date un l the knock-out date -1 where the price
protected date is defined. of the underlying is higher or equal to the exercise price (a) =
Underlying quan ty

Quan ty for each trading day within a se lement period from

the knock-in date un l the knock-out date -1 where the price
of the underlying is lower than the exercise price (b) =
Underlying quan ty * gearing.

Based on the number of trading days in each se lement

period, use the quan ty from (a) and (b) and calculate the
cashflows as quan ty * exercise quote. Sum the quan es and
cashflows for each se lement period.

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Scenarios Full exposure view

If end date >= final date >= Quan ty on knock-out date (a) = Underlying quan ty *
current date > knock-out date > number of trading days between the protected date and the
knock-in date = begin date = knock-out date.
reference date and no
protected date is defined. Quan ty for each trading day within a se lement period from
the knock-in date un l the knock-out date -1 where the price
of the underlying is higher or equal to the exercise price (b) =
Underlying quan ty

Quan ty for each trading day within a se lement period from

the knock-in date un l the knock-out date -1 where the price
of the underlying is lower than the exercise price (c) =
Underlying quan ty * gearing

Based on the number of trading days in each se lement

period, use the quan ty from (a), (b) and (c) and calculate the
cashflows as quan ty * exercise quote. Sum the quan es and
cashflows for each se lement period.

If end date >= final date > Quan ty for each trading day within a se lement period from
reference date >= current date reference date to final date (a) = Underlying quan ty
= knock-in date >= begin date
and no knock out event has Based on the number of trading days in each se lement
occurred from begin date to period, use the quan ty from (a) and calculate the cashflows
current date. as quan ty * exercise quote. Sum the quan es and cashflows
for each se lement period.

If final date > end date >= Quan ty for each trading day within a se lement period from
reference date = knock-in date the reference date to the end date (a) = Underlying quan ty
= current date >= begin date
and no knock out event has Based on the number of trading days in each se lement
occurred from begin date to period, use the quan ty from (a) and calculate the cashflows
current date. as quan ty * exercise quote. Sum the quan es and cashflows
for each se lement period.

If final date >= end date > begin Quan ty for each trading day within a se lement period from
date >= reference date >= begin date to end date (a) = Underlying quan ty
current date and no knock-in
feature in the contract (lower Based on the number of trading days in each se lement
barrier price is null or 0). period, use the quan ty from (a) and calculate the cashflows
as quan ty * exercise quote. Sum the quan es and cashflows
for each se lement period.

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Scenarios Full exposure view

If current date >= end date >= If knock-in date and knock-out dates are not between the
final date > reference date >= reference date and the final date:
begin date
Quan ty for each trading day within a se lement period from
the reference date to the final date and where the price of the
underlying instrument is higher or equal to the exercise price
(a) = Underlying quan ty

Quan ty for each trading day within a se lement period from

the reference date to the final date and where the price of the
underlying instrument is lower than the exercise price (b) =
Underlying quan ty * gearing

Based on the number of trading days in each se lement

period, use the quan ty from (a) and (b) and calculate the
cashflows as quan ty * exercise quote. Sum the quan es and
cashflows for each se lement period.

If knock-in date and/or knock-out date is available and

between the reference date and the final date and no
protected date is defined

Quan ty for each trading day within a se lement period from

the reference date or the knock-in date (whichever is later) to
the final date or the knock-out date (whichever is earlier) and
where the price of the underlying instrument is higher or
equal to the exercise price (a) = Underlying quan ty

Quan ty for each trading day within a se lement period from

the reference date or the knock-in date (whichever is later) to
the final date or the knock-out date (whichever is earlier) and
where the price of the underlying instrument is lower than the
exercise price (b) = Underlying quan ty * gearing

Based on the number of trading days in each se lement

period, use the quan ty from (a) and (b) and calculate the
cashflows as quan ty * exercise quote. Sum the quan es and
cashflows for each se lement period.

If knock-in date and/or knock-out date is available and

between the reference date and the final date and the
protected date is defined

Quan ty for each trading day within a se lement period from

the reference date or the knock-in date (whichever is later) to
the final date or the knock-out date -1 (whichever is earlier)
and where the price of the underlying instrument is higher or
equal to the exercise price (a) = Underlying quan ty

Quan ty for each trading day within a se lement period from

the reference date or the knock-in date (whichever is later) to
the final date or the knock-out date -1 (whichever is earlier)
and where the price of the underlying instrument is lower
than the exercise price (b) = Underlying quan ty * gearing

Quan ty on the knock-out date if the knock-out date -1 is

earlier than the final date(c) = Underlying quan ty * number
of trading days between the protected date and knock-out
date

Based on the number of trading days in each se lement

period, use the quan ty from (a), (b) and (c) and calculate the
cashflows as quan ty * exercise quote. Sum the quan es and
cashflows for each se lement period.

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Scenarios Full exposure view

If current date >= final date >= If the knock-in date and/or the knock-out date is available and
end date > begin date >= between the reference date and the final date and no
reference date protected date is defined

Quan ty for each trading day within a se lement period from

the begin date or the knock-in date (whichever is later) to the
end date or the knock-out date (whichever is earlier) and
where the price of the underlying instrument is higher or
equal to the exercise price (a) = Underlying quan ty

Quan ty for each trading day within a se lement period from

the begin date or the knock-in date (whichever is later) to the
end date or the knock-out date (whichever is earlier) and
where the price of the underlying instrument is lower than the
exercise price (b) = Underlying quan ty * gearing

Based on the number of trading days in each se lement

period, use the quan ty from (a) and (b) and calculate the
cashflows as quan ty * exercise quote. Sum the quan es and
cashflows for each se lement period.

If the knock-in date and/or the knock-out date is available and

between the reference date and the final date and the
protected date is defined

Quan ty for each trading day within a se lement period from

the begin date or the knock-in date (whichever is later) to the
end date or the knock-out date -1 (whichever is earlier) and
where the price of the underlying instrument is higher or
equal to the exercise price (a) = Underlying quan ty

Quan ty for each trading day within a se lement period from

the begin date or the knock-in date (whichever is later) to the
end date or the knock-out date -1 (whichever is earlier) and
where the price of the underlying instrument is lower than the
exercise price (b) = Underlying quan ty * gearing

Quan ty on knock-out date if the knock-out date -1 is earlier

than the end date (c) = Underlying quan ty * number of
trading days between the the protected date and the knock-
out date

Based on the number of trading days in each se lement

period, use the quan ty from (a), (b) and (c) and calculate the
cashflows as quan ty * exercise quote. Sum the quan es and
cashflows for each se lement period.

Example 10 - Par cipa ng Forwards and TARKOs

A par cipa ng forward is a deriva ve contract that allows the investor to benefit from favourable exchange rate movements. It gives the right and obliga on to buy
or sell a fixed amount in one currency against the other currency at a pre-defined strike price and at determined dates in the future. Knock-in and knock-out barriers
can also be defined as a part of the contract (not mandatory).

TARKOs are very similar to Par cipa ng Forwards but with an addi onal feature of a Target Value, that is defined at the incep on of the contract. A target value
represents the accumulated profit in price terms. This is the maximum profit value that can be earned from the contract, i.e. when the contract reaches this value,
the remaining outstanding commitment under the contract is knocked-out.

Both contracts are defined on a pair of currencies, i.e. the buy and sell currencies, and are a combina on of 2 or 3 series of forex op ons that are defined in the
instrument composi on table:

Long Call Op on

A fixed amount of the buy currency is to be bought against the sell currency at the given strike price with a certain frequency un l a maturity date. Knock-in and
knock-outs can be defined in the op ons.

Short Put Op on

A fixed amount of the sell currency is to be sold against the buy currency at the given strike price with a certain frequency un l a maturity date. Knock-in and knock-
outs can be defined in the op ons.

Vanilla Call Op on

A fixed amount of the buy currency against the sell currency at the given strike price with a certain frequency un l a maturity date. No knock-ins or knock-outs are
defined in the op ons. This is op onal and might not be present in most of the contracts.

The following provides an example of instrument se ng to manage par cipa ng forwards / TARKOs:

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A ribute Descrip on

Instrument

Nature Exo c Op on

Instrument Structured Product Standalone

Class

Sub-nature Par cipa ng Forward or Target Knock-out Forward

Price Quote
Valua on
Rule This price must be provided by the price history. Front Office – PM does not have
the capability to price it.

Begin date Defines the life period of the contract

and end
date

Reference Currency sold

Currency

In each Op ons (Call, Put and Vanilla) - Instrument table

Nature Op on

Op on Class Call or Put

Op on Style American or European

Begin date Sets the life period of each op on.

and end
date The begin date of the op on will be between the begin date and end
date of the main contract.

The end date of the op on will be the same or lesser than the end date
of the main contract, but greater than the begin date of the main
contract.

Redemp on Strike price

quote

Underlying Underlying quan ty in the call (including Vanilla call) and put op ons. This is the
Quan ty quan ty that will be purchased at every se lement dates.

Underlying For the call op ons (long and vanilla), it is the currency bought and for the put
Currency op on, this is again the currency bought (the put is being shorted).

Reference Currency sold

Currency/
Exercise
Currency

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A ribute Descrip on

Fixing date Sets the first se lement date. This date is always a er the begin date and before
the end date. It must be always on a business day (of the calendar, associated
with the instrument).

Payment Sets the frequency of the se lement of the op ons (for informa on purposes
Frequency only).

Example: 1 Month

Knock-in Used to capture the date (if applicable) when the op on was knocked in (first
Date me the KI barrier was breached: either from below for Up/In or from above for
Down/In barrier types). This value is populated by the back-end and not
calculated by TAP.

Knock-out Used to capture the date (if applicable) when the op on was knocked out (first
Date me the KO barrier was breached: either from below for Up/Out or from above
for Down/Out barrier types). This value is populated by the back-end and not
calculated by TAP.

Term Event of each op ons

Validity The date from which is event is valid.

Date

Pay Off Long for the long call op on, Short for the short put op on and Vanilla for the
Nature Vanilla call op on.

Upper Upper barrier price rela ve to the Knock-out condi on for the op ons.
Barrier
For TARKOs - The intrinsic profit value. This sets the top limit accumulated profit
the underlying can reach before the contract is ‘knocked out’. This check is done
weekly and once the limit is reached, the contract would expire.

Upper Upper barrier level in percentage terms. If the upper barrier price is not provided,
Barrier % this percentage has to be mul plied by the ‘Exercise Quote’ to calculate the upper
barrier price. Applicable only for par cipa ng forwards.

Upper Defines the nature of the applicable upper barrier. For the long call op on, the
Barrier nature is set to 'Up & Out' while for the short put op on, the nature is set to
Nature 'Down & Out'.

Lower Lower barrier price rela ve to the knock-in condi on for the op ons.
Barrier

Lower Lower barrier level in percentage terms. If the lower barrier price is not provided,
Barrier % this percentage has to be mul plied by the ‘Exercise Quote’ to calculate the lower
barrier price.

Barrier Defines the nature of the applicable lower barrier. For the long call op on, the
Nature nature is set to 'Up & In' while for the short put op on, the nature is set to 'Down
& In'.

Total The total quan ty to be bought (for the long call and vanilla op on) and sold (for
Quan ty the short put op on).

Opera ons
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The par cipa ng forward and TARKO instruments are bought and sold using the ‘buy’ and ‘sell’ opera ons.

Business Func ons

Valua on

The instruments are valued according to their valua on rule. Typically, such instruments are quoted instruments. Generally, such instruments are specific contracts
between the buyer and seller. The price is quoted (fixed) by the seller of such contracts at the me of execu on and once the buyer agrees to the contract price and
other terms and condi ons of the contract, the deal is executed. Therefore, these instruments need not have a daily quote during the contract period.

Risk Posi on - Full exposure

Typically, the risk nature of this kind of instrument is the risk nature of the underlying currency instrument. The risk posi on (view) in valua on assumes the contract
remains ac ve un l the end date and the view decomposes the contract in a posi on in the underlying currency with an offse ng cash posi on.

In risk posi on (in ‘full exposure’ view), both the buys (including Vanilla, if applicable) and sell currency with the underlying quan ty will be shown as the remaining
quan ty ll maturity. One of the following scenarios can occur:

Scenarios Full exposure view

If the op ons in the contract have the knock-out feature (i.e. the No underlying currency
upper price is set and is not null or 0) and knock-out date < current posi on would be shown.
date = se lement date or knock-in levels (lower barrier) is not null
or 0 and knock-in date is not available.

If the op ons begin date < current date and current date < end The outstanding part of
date and current date = se lement date. the life me of each of the
op ons are determined
by:
Life me part = (end date –
valua on date)/ (end date
– begin date)
Remaining quan ty =
Life me part * Total
quan ty
Market value = Remaining
quan ty * current market
price of the underlying
currency posi on
Cost price (per currency) =
redemp on quote
Cost value = Remaining
quan ty * cost price per
currency

If the op ons begin date < current date and current date < end The outstanding part of
date and current date <> se lement date. the life me of each of the
op ons are determined
by:
Life me part = (end date –
previous se lement date)/
(end date – begin date)

The remaining quan ty,

market value, cost price
and cost value calcula on
logic is same as above.

If the valua on date is prior to the begin date of the contract. The outstanding part of
the life me of the contract
is determined by:
Life me part = 1

The remaining quan ty,

market value, cost price
and cost value calcula on
logic is same as above.

An offse ng cash posi on will be shown in the currency of the par cipa ng forward / TARKOs that is calculated as the difference between the market value of the
contract as per accoun ng view minus the market value derived above in any of the scenarios.

Risk Posi on - Delta exposure

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The underlying posi on will be shown with the underlying quan ty * delta of the op on (delta for all the op ons is not calculated by the TAP financial server and
must be available in the Instrument Chrono table) as the remaining quan ty ll maturity. The other business logic is the same as for Full exposure. If a delta is not
available, then the result would be the same as "Full exposure".

Journal

A series of se lement dates are created for the call (including Vanilla, if applicable) and put op ons between the ‘Reference Date’ (inclusive) and ‘Final Date’
(inclusive). This is created by using the fixing date (which is the first se lement date – this could be a date prior or a er the reference date) and based on the
payment frequency unit. The subsequent se lement dates are created using the calendar that is linked to the op ons. If there is no calendar linked to the op ons,
then the system calendar is used. The ‘Reference Date’ and ‘Final Date’ can be fetched from ‘Reference Date’, ‘Final Date’ a ributes of the ‘Domain – Journal’
respec vely.

If any of the op ons have been knocked out between the ‘Reference Date’ and ‘Final Date’, then the series of dates are created un l the preceding se lement date
a er the knock-out date.

For each se lement date, a ‘Buy’ (for the call and Vanilla op on, if applicable) is created for the currency that is to be bought using the underlying quan ty and the
exercise quote while a ‘Sell’ (for the put op on) is also created for the currency that is to be sold using the underlying quan ty (this is already adjusted with the
par cipa on levels, i.e. the no onal amount is adjusted to this extent) and the exercise quote. Since it a sell of put op on, the underlying instrument is bought. The
buy (underlying) currency is shown as posi ve cashflow while the sell (reference or exercise) currency is shown as a nega ve cashflow.

The system’s current date – which is the system date (SYSDATE()) -- is a key a ribute is spli ng the historical and future cashflows.

The trading day is derived from the calendar in the instrument table.

Scenarios Full exposure view

If the final date is less than the begin date of No cashflows or quan ty would be shown for
the op ons or the knock-in date > the final this posi on.
ate or no knock-in has occurred ll the
current date or knock-in is prior to the
reference date.

If end date >= final date >= current date > For each of the op ons:
knock-in date >= begin date > reference date
and no knock out event has occurred. Quan ty for each se lement day star ng from
the knock-in date to the final date (a) =
Underlying quan ty

Cashflows = (a) * strike price * -1

If end date >= final date >= current date > For each of the op ons:
knock-out date > knock-in date = begin date =
reference date and no protected date is Quan ty for each se lement day star ng from
defined. the knock-in date to the knock-out date (a) =
Underlying quan ty

Cashflows = (a) * strike price * -1

If end date >= final date > reference date >= For each of the op ons:
current date = knock-in date >= begin date
and no knock out event has occurred from Quan ty for each se lement day star ng from
begin date to current date. the reference date to the final date (a) =
Underlying quan ty

Cashflows = (a) * strike price * -1

If final date > end date >= reference date = For each of the op ons:
knock-in date = current date >= begin date
and no knock out event has occurred from Quan ty for each se lement day star ng from
begin date to current date. the reference date to the end date (a) =
Underlying quan ty

Cashflows = (a) * strike price * -1

If final date >= end date > begin date >= For each of the op ons:
reference date >= current date and no knock-
in feature in the contract (lower barrier price Quan ty for each se lement day star ng from
is null or 0). the begin date to the end date (a) = Underlying
quan ty

Cashflows = (a) * strike price * -1

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Scenarios Full exposure view

If current date >= end date >= final date > If the knock-in date and the knock-out date are
reference date >= begin date not between the reference date and the final
date:

For each of the op ons:

Quan ty for each se lement day star ng from

the reference date to the final date (a) =
Underlying quan ty

Cashflows = (a) * strike price * -1

If knock-in date and/or knock-out date is

available and between the reference date and
the final date:

For each of the op ons:

Quan ty for each se lement day star ng from

the reference date or the knock-in date
(whichever is later) to final date or the knock-
out date (whichever is earlier) (a) = Underlying
quan ty

Cashflows = (a) * strike price * -1

If current date >= final date >= end date > If the knock-in date and/or the knock-out date is
begin date >= reference date available and between the reference date and
the final date:

For each of the op ons:

Quan ty for each se lement day star ng from

the begin date or the knock-in date (whichever
is later) to the end date or the knock-out date
(whichever is earlier) (a) = Underlying quan ty

Cashflows = (a) * strike price * -1

Published on: 03/05/2021

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