Discount factor and Queuing: Difference between pages

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imported>Doug Williamson
(Align presentation of formula with Annuity Factor page.)
 
imported>Doug Williamson
(Identify risk management context.)
 
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(DF).  
''Risk management''.


Queuing is a risk management arrangement whereby transfer orders are held pending by the originator/deliverer or by the system until sufficient cover is available on the originator’s/deliverer’s clearing account or under the limits set against the payor.


'''1.'''
In some cases, cover may include unused credit lines or available collateral.


Strictly, the number less than one which we multiply a future cash flow by, to work out its present value as:


PV = DF x future cashflow.
== See also ==
 
* [[Caps]]
 
* [[Collateral]]
The periodic discount factor is calculated from the periodic yield as:
* [[Credit line]]
 
* [[Gridlock]]
DF = (1 + periodic yield)<SUP>-1</SUP>
* [[Risk management]]
 
 
Commonly abbreviated as DF(n,r) ''or'' DF<SUB>n,r</SUB>
 
 
where
 
n = number of periods, ''and''
 
r = periodic cost of capital.


 
[[Category:Manage_risks]]
 
'''''Examples'''''
 
For example,
 
when the periodic cost of capital (r) = 6%
 
and the number of periods in the total time under review (n) = 1, then:
 
Discount factor = (1+r)<sup>-n</sup>
 
= 1.06<sup>-1</sup>
 
= '''0.9434'''
 
 
The greater the time delay, the smaller the Discount Factor.
 
For example,
 
when the periodic cost of capital = 6% as before,
 
but the number of periods delay increases to 2, then:
 
Discount factor = (1+r)<sup>-n</sup>
 
= 1.06<sup>-2</sup>
 
= '''0.8890'''
 
''(A smaller figure than the 0.9434 we calculated previously for just one period's delay.)''
 
 
 
'''2.'''
 
Loosely,the yield or cost of capital used for the purpose of calculating Discount Factors. 
 
For example the 6% rate applied in definition 1. above.
 
 
== See also ==
* [[Annuity factor]]
* [[CertFMM]]
* [[Compounding factor]]
* [[Factors]]
* [[Present value]]

Latest revision as of 14:44, 18 August 2018

Risk management.

Queuing is a risk management arrangement whereby transfer orders are held pending by the originator/deliverer or by the system until sufficient cover is available on the originator’s/deliverer’s clearing account or under the limits set against the payor.

In some cases, cover may include unused credit lines or available collateral.


See also

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