What is noise threshold value in SAP FS-BA-PM-HP - Hedge Processes?

SAP Term: noise threshold value

• Component: FS-BA-PM-HP

• Component Name: Hedge Processes

• Description: Size of the adjustment for the offset method for valuing fair value hedges. The noise threshold value is added in the hedge ratio calculation; the change of value in the underlying transaction is in the numerator and the change of value in the hedge transaction is in the denominator. This avoids incorrectly classifying a hedging relationship as ineffective because of minor changes in value.

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• Key Concepts: 
  The noise threshold value is a parameter used in the FS-BA-PM-HP Hedge Processes component of SAP. It is used to determine the maximum amount of deviation from the target rate that is allowed before a hedge transaction is triggered. 
  
  How to use it: 
  The noise threshold value should be set according to the risk tolerance of the organization. A higher noise threshold value will result in fewer hedge transactions being triggered, while a lower noise threshold value will result in more hedge transactions being triggered. The noise threshold value should be adjusted as needed to ensure that the organization’s risk tolerance is met. 
  
  Tips & Tricks: 
  It is important to remember that the noise threshold value should be set according to the organization’s risk tolerance and not according to market conditions. Market conditions can change quickly, and setting the noise threshold value too low could result in unnecessary hedge transactions being triggered. 
  
  Related Information: 
  For more information on the FS-BA-PM-HP Hedge Processes component of SAP, please refer to the official SAP documentation.