How To Fix RY488 - No volatility smile construction method in the evaluation type

SAP Error Message - Details

• Message type: E = Error

• Message class: RY - Messages for RM Basis

• Message number: 488

• Message text: No volatility smile construction method in the evaluation type

What causes this issue?

In the evaluation type/valuation rule, you entered a volatility type
with moneyness defintion <LS>Option Delta</>. However, you have not
entered a volatility smile construction method. This setting is required
to access the central volatility database for delta-quoted volatilities.

System Response

The system cannot determine a delta-quoted volatility. It searches for a
volatility in the underlying-specific volatility database without
moneyness instead. This implicates that the smile effect is ignored.

How to fix this error?

Enter a volatility smile construction method on the tab <LS>Evaluation
Control 2</> in the definition of the evaluation type/valuation
rule.

Procedure for System Administrators

The system issues an error message and will not allow you to continue with this transaction until the error is resolved.

Error message extract from SAP system. Copyright SAP SE.

Smart SAP Assistant

• What is the cause and solution for SAP error message RY488 - No volatility smile construction method in the evaluation type ?

  The SAP error message RY488, which states "No volatility smile construction method in the evaluation type," typically occurs in the context of financial instruments, particularly when dealing with options and their pricing models in SAP's Treasury and Risk Management (TRM) module. This error indicates that the system is unable to find a defined method for constructing a volatility smile for the specified evaluation type.
  Cause:
  
  
  Missing Configuration: The most common cause of this error is that the volatility smile construction method has not been configured for the specific evaluation type you are using. This could be due to a lack of setup in the system or an oversight during the configuration process.
  
  
  Incorrect Evaluation Type: The evaluation type being used may not be correctly linked to a volatility smile construction method, or the evaluation type may not be appropriate for the financial instruments being evaluated.
  
  
  Data Inconsistencies: There may be inconsistencies or missing data in the configuration tables that link evaluation types to their respective volatility smile methods.
  
  
  Solution:
  
  
  Check Configuration: 
  
  Navigate to the configuration settings in SAP for the Treasury and Risk Management module.
  Ensure that a volatility smile construction method is defined for the evaluation type you are using. This can typically be found under the settings for options pricing or volatility modeling.
  
  
  
  Define Volatility Smile Method:
  
  If a method is not defined, you will need to create one. This involves specifying how the volatility smile should be constructed based on market data or other relevant parameters.
  
  
  
  Link Evaluation Type:
  
  Ensure that the evaluation type is correctly linked to the volatility smile construction method. This may involve checking the relevant configuration tables or settings in the system.
  
  
  
  Consult Documentation: 
  
  Refer to SAP documentation or help resources for detailed steps on how to configure volatility smile methods and evaluation types.
  
  
  
  Testing: 
  
  After making the necessary changes, perform a test to ensure that the error no longer occurs and that the volatility smile is being constructed correctly.
  
  
  
  Related Information:
  
  SAP Notes: Check for any relevant SAP Notes that may address this specific error or provide additional guidance on configuring volatility smiles.
  User Forums: Engage with SAP user communities or forums where similar issues may have been discussed, as other users may have encountered and resolved the same error.
  Training and Documentation: Consider reviewing training materials or documentation related to SAP TRM, particularly sections that cover options pricing and volatility modeling.
  
  If the issue persists after following these steps, it may be beneficial to consult with an SAP expert or your organization's SAP support team for further assistance.