Linear interpolation and Real-time treasury: Difference between pages

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imported>Doug Williamson
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A straight-line estimation method for determining an intermediate value.
The concept of a treasury with fully automated routine processing which is updated instantly and data displayed immediately.  


Real-time treasury aims to helps treasurers make timely decisions based on live information.


__TOC__


Key benefits of real-time treasury include:


<span style="color:#4B0082">'''Example 1: Interpolation'''</span>
* eliminating labour-intensive processes
* reducing the need for hedging and liquidity buffers
* lowering gross debt
* eliminating FX exposures faster
* reducing local bank credit risk


Consider a set of cashflows which has:


Net present value (NPV) of +$4m at a yield of 5%.
<span style="color:#4B0082">'''Vision for the future'''</span>


NPV of -$4m at a yield of 6%.
:While a fully real-time treasury remains a vision for the future, its building blocks are already in place, with the instruments, solutions and technology that real-time treasury will rely on already proven and in use.


:''The road to real-time treasury, Deutsche Bank, page 24''


Using linear interpolation, the estimated yield at which the cashflows have an NPV of $0 is given by:


5% + ( +4 / ( +4  -  -4) ) x (6 - 5)%


5% + ( +4 / +8 ) x 1%
==See also==
* [[Real-time gross settlement system]]
* [[Real-time Payments]]
* [[Real-time transmission, processing or settlement]]


5% + 0.5%
[[Category:Cash_management]]
 
[[Category:Treasury_operations_infrastructure]]
= '''5.5%'''.
 
5.5% is the estimated internal rate of return (IRR) of the cashflows.
 
 
==Interpolation and Iteration==
Interpolation is often used in conjunction with Iteration.
 
Using iteration, the straight-line estimated IRR of 5.5% would then be used, in turn, to recalculate the NPV at the estimated IRR of 5.5%, producing a recalculated NPV even closer to $0.
 
5.5% and the recalculated NPV would then be used with interpolation once again to further refine the estimate of the IRR.
 
This iteration process can be repeated as often as required until the result converges on a sufficiently stable final figure.
 
==Extrapolation==
 
Another closely related linear estimation technique is extrapolation. 
 
This involves the straight-line estimation of values outside the range of the sample data used to do the estimation with.
 
<span style="color:#4B0082">'''Example 2: Extrapolation'''</span>
 
Using the following data to estimate net present value (NPV) at a yield of 7%, using extrapolation:
 
NPV of +$4m at a yield of 5%.
 
NPV of -$4m at a yield of 6%.
 
 
 
'''''Solution'''''
 
Based on the sample data, for every 1% increase in the yield, the NPV moved by:
 
-$4m - $4m = -$8m
 
 
Extrapolating this trend to a yield of 7%, this is a further increase in the yield of 7 - 6 = 1%.
 
The NPV would be modelled to fall from -$4m to:
 
= -$4m - $8m
 
= -$'''12m'''.
 
 
== See also ==
* [[CertFMM]]
* [[Internal rate of return]]
* [[Interpolation]]
* [[Iteration]]
* [[Linear]]
* [[Straight line]]

Revision as of 11:54, 8 October 2020

The concept of a treasury with fully automated routine processing which is updated instantly and data displayed immediately.

Real-time treasury aims to helps treasurers make timely decisions based on live information.


Key benefits of real-time treasury include:

  • eliminating labour-intensive processes
  • reducing the need for hedging and liquidity buffers
  • lowering gross debt
  • eliminating FX exposures faster
  • reducing local bank credit risk


Vision for the future

While a fully real-time treasury remains a vision for the future, its building blocks are already in place, with the instruments, solutions and technology that real-time treasury will rely on already proven and in use.
The road to real-time treasury, Deutsche Bank, page 24


See also