New Developments for Treasury and Risk Management in Enhancement Package 3
Heike Ripp, Aniket Kulkarni Solution Manager Treasury and Risk Management SAP ERP Financials SAP AG June 03, 2008
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This presentation is a preliminary version and not subject to your license agreement or any other agreement with SAP. This document contains only intended strategies, developments, and functionalities of the SAP® product and is not intended to be binding upon SAP to any particular course of business, product strategy, and/or development. Please note that this document is subject to change and may be changed by SAP at any time without notice. SAP assumes no responsibility for errors or omissions in this document.
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Optimize Finance With Treasury Applications From SAP Treasury applications from SAP
SAP Treasury and Risk Management
Manage Financial Risks
Risk Analyzer Credit Risk
Market Risk
Portfolio
Transaction Manager
Manage Financial Instruments
Hedge Mgt MM
FX
Exposure Mgt DER
DEB
SEC
COM
SAP Cash & Liquidity Management Cash Management
Manage Cash
Liquidity Planning
SAP In-House Cash SAP Bank Communication Management
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Overview of New Developments New Instruments:
Commodity Futures and Options Commodity Forwards Market Risk Analysis of Commodity paper deals Enhancements of listed Options
Improved legal requirements:
Valuation Class and Portfolio Transfer Amortization of Money Market deals New Accrual functionality for OTC transactions
Hedge Management:
Hedge Documentation Hedge of a net investment Other enhancements in Hedge Management
Portfolio Analyzer:
Portfolio risk adjusted performance
Credit Risk Analyzer:
Online limit check for security transactions Relative Limits
Credit Risk Analyzer:
New value at Risk key figures New key figures – Yield to maturity and modified duration
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Commodity Master Data Commodity master data: Commodity master data is where the Commodity details like the commodity type, group or Unit of measure are stored. Derivative instruments are created in system using this information. New BAPI for Commodity master data is available
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Commodity Futures and Options Commodity Futures / Options: New popup at definition of a security class to select a commodity (master data has to exist in the system before)
New product type for Commodity Futures and listed Commodity Options (Future Style) New feature for matching of positions (FIFO, LIFO or manual matching)
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Futures: Matching of Positions Manual Matching: Several
long and short positions could be matched manually if the units does match
exactly If the units does not match exactly only one long and one short position could be matched manually If the match does not fit the requirements it could be reversed step by step or it could be discard
FIFO / LIFO proposal: The
system does generate a proposal for all possible matches If the match does not fit the requirements it could be reversed step by step or it could be discard
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Commodity Forwards Commodity Forwards: Commodity Forwards can only be cash settled – delivery is NOT supported Commodity Forwards are integrated in TR-TM (OPEN TRTM etc supported) Commodity Forwards use Commodity Master data like Futures and Options
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Market Risk Analysis of Commodity Paper Deals Commodity Future For commodity futures, the NPV at the end of day after margin call is zero. But, the theoretical price will be the discounted spot price with risk free interest for the residual maturity of future.
Commodity Forward Theoretical price of commodity forwards is calculated, with discounting the spot price of the Forward with risk free interest rate for the period.
Commodity Option Price of commodity options is calculated using “Black 76” model. This model uses commodity future price volatility of price the option (as the underlying of commodity option is commodity future)
VaR of Commodity Paper Deals: For all the commodity paper deals in the system, it is possible to calculate the Value at Risk (VaR)
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Enhancement of Listed Options
Supports lifecycle of exchange traded options (normal style): open close
partial close
expiration
accounting
Calculates NPV in Market Risk Analyzer
options on stock, bond and security index
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Valuation class and portfolio transfer
Valuation Class Transfer: Whenever you want an existing deal or security position to be valuated differently, you need to transfer it to a new position with a different valuation class. While this has been possible in the securities and loans area with the transaction TPM15, it was impossible for money market, foreign exchange and OTC derivatives. The new transaction TPM15M offers now a valuation class transfer for securities, money market, foreign exchange and OTC derivatives. You still have to use TPM15 to transfer loans, you could use it for securities as well. You can do partial transfers for securities only. Positions of other contract types have to be transferred completely.
Portfolio Transfer: Business scenarios might require to identify security positions by portfolio. In these cases you might want to assign a whole security position or a part of it to a new portfolio. The portfolio transfer represents this process.
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Amortization of money market deals
When entering a main flow for a fixed term deposit, or a cash flow transaction, or an interest rate instrument or an commercial paper, a nominal amount can be specified that can differ from the payment amount. This function is only used for amortizations.
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New Accrual Functionality for OTC Deals For the accrual/deferral of profits/losses from OTC transactions now have to use the accrual/deferral functions previously only available in the Securities area (transaction TPM44, reversal transaction TPM45). You replace the existing accrual/deferral functions for OTC transactions (transactions TBB4 and TBB5) to enable all financial transactions in the Transaction Manager to be accrued/deferred using new accrual functionality (TPM44). Accruals/deferrals flows for OTC transactions that you executed with the old accrual/deferral function (transaction TBB4) in an earlier release, first need to be migrated (TPM migration). All accrual and deferral flows need to be posted before running the conversion program.
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Hedge Documentation
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Hedge Of A Net Investment The net investment in a subsidiary could until now being hedged with foreign currency instruments, it is now also possible to use money market instruments. The note 954065 helps to downgrade the functionality to ERP2004.
Till now only the assignment of one Exposure to the Hedge Plan was possible, now the assignment of several Exposures is possible. (Note 813731)
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Other Hedge Enhancements It is possible to choose the existing exposure within the transaction TX01 instead of create a new hedge plan or insert into an existing hedge plan.
There are 2 additional fields available in the hedge plan - grouping and program. They enable the user to group his hedge plans according to his individual needs. The names are free definable.
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Other Hedge Enhancements II
With the click on the button „History‟ on the Hedge Relationship tab you obtain to the list of versions of the Hedge Relationship with the Status Description like „active‟, „dedesignated‟ or „dissolved‟. (up) On the bottom part of the screen you can see the Valuation Versions from which you can click into detailed Log of the Effectiveness Test and into the Market Data were used. You enable it with the flag on the valuation screen (TPM) or in customizing under „Define Calculation Types‟ flag © SAP 2008 / Page 17
Portfolio risk adjusted performance
Apart from calculating yield on a portfolio and benchmarking a portfolio to standard market portfolio, It is necessary o measure the quality of return, hence the following new Risk Key Figures are introduced: •
• • • •
Sharpe Ratio • Standard Deviation of portfolio yield • Standard Deviation of benchmark yield Jensen‟s Alpha • Regression Beta Treynor Ratio • Regression Beta Sortino Ratio • Downside Risk Information Ratio • Tracking Error
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Relative Limits New transaction for Master Data: KLREL_LIMIT_ASS
Choose Utilization Portfolio
Utilization Key Figure
Can choose the „Utilization Portfolio‟ and the „Reference Portfolio‟. They can be same or different. © SAP 2008 / Page 19
Choose Reference Portfolio
Reference Key Figure
Can compare same key figures from different portfolios OR Different key figures from the same portfolio
Define Limits Percentage
Define Limits Absolute
Limits can be defined as „Percentage‟, „Absolute‟ Or „Both Percentage and Absolute‟
Online limit check for security transactions
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New value at Risk key figures
The effects of small changes in portfolio composition are measured by the Marginal VaR (MVaR). The contribution of a position or sub-portfolio to the total portfolio VaR is measured by the VaR Contribution (VaRC). Certain VaR methods are based on a normal distribution for the profits and losses of a portfolio. But in reality the probability for high profits and high losses is often much higher than that of the normal distribution. The Mean Excess Loss (MEL) is used to solve this problem. New key figures are avaliable with the following VaR calculation methods: VaRC: variance covariance delta MVaR: variance covariance delta These two reported at single FO level and PH level Mean excess loss: Only historical simulation method
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New Key Figures: VaR (Key Figure Hierarchy View) New key figures: •
VaR Contribution (VaRC) • Marginal VaR (MVaR) • Mean Excess Loss (MEL)
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New key figures – Yield to maturity and modified duration Modified Duration: Modified duration is derived by making a small adjustment (modification) to the Macaulay duration value, as it considers bond‟s yield to maturity. Modified Duration is an adjusted measure of duration which can be used to approximate the interest rate sensitivity of an option-free (straight) bond. Yield To Maturity Calculated using Yield to maturity of a bond, YTM is the internal rate of return of a bond.
Both Modified duration and YTM are calculated for instruments sensitive to interest rates like
Bonds Interest rate securities Money market instruments Interest rate SWAPS
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Outlook
Enhancement Package 4 for SAP ERP 6.0
Compliance
Hedge Management for Commodities Regression Analysis IFRS 7 Reporting
Transparency
Efficiency
SWIFT correspondence monitor
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New Exposure Management Exposure Integration into Market Risk Analyzer
Industry Focus
Insurance
Upcoming Events
www.sap.com/treasuryconference
http://www.eurofinance.com/conferences/International08/08c_Intl_main.html
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Thank you!
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