In the Create Amortization & Accretion Rules panel, you can add an amortization/accretion rule for use with fixed income positions that follow the expected credit losses (ECL) methodology. After you create an accounting rule, you can create the amortization/accretion rules that use the accounting rule.
From an amortization perspective, ECL uses the net present value (NPV) approach for calculating the yield. That yield should be “locked-in” and not change except for changes in initial cash flows or changes in initial cash flows and coupon rate.
To create an amortization & accretion rule for ECL:
- Do one of the following:
- In Portfolio Data Center, in the left navigation pane, click Portfolio Desk > Accounting Portfolio Rules > Amortization & Accretion > Create Amortization & Accretion Rules.
- In Accounting Center, in the left navigation pane, click Setup > Portfolio Rules > Amortization & Accretion > Create Amortization & Accretion Rules.
You see the Create Amortization & Accretion Rules panel. - Under Rule Information and Asset/Security Specific, identify the accounting rule and security specific information.
For more information, see Amortization & Accretion Rules Panel Options. - Under Amortization/Accretion, do the following:
- Set Yield Type to Net Present Value.
- Set Adjustment Type to ECL.
- Set Amortization Methodology to Prospective.
- Set the Amortization/Accretion Method to the appropriate value.
- Set ECL Prospective Amortization Yield Recalculation Frequency to ICF (Initial Third Party Cash Flow Released) or ICF/CPN (Initial Third Party Cash Flow/Variable Rate). - Complete the remaining options on the Create Amortization & Accretion Rules panel.
- Click Submit.
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