The main challenge does not stem from the mathematical formula but from the cash flows to be considered for EIR calculations:

• Systems for retail business do not have cash flows.
• Systems lose historical cash flows (real cash flows).
• Systems cannot calculate future floating cash flows.
• Systems cannot distinguish between EIR relevant and irrelevant cash flows.
• Systems cannot consider prepayment behaviour (only contractual cash flows).
• Systems cannot handle complex fixing agreements.

The solution has to calculate the amortisation plan over the complete lifecycle of a deal and to provide separate amounts for all relevant cash flows, including

• premiums, discounts and upfront payments
• transaction costs
• forward adjustments
• costs of embedded separated from the host contract
• hedge adjustments at the termination of a hedge relationship
• initial basis adjustments for late hedges
• unwinding of the impairment adjustment

A further challenge is to know when the EIR has to be recalculated:

• No recalculation of EIR in the following cases:
  • Not because of unexpected capital changes such as partial notional redemptions!
  • Not because of an impairment!
• EIR has to be recalculated in the following cases:
  • For floating-rate products at the new fixing date.
  • For credit lines at each drawing.
  • For security long positions at each buying transaction.
  • After a contractual change or new estimation of the repayment plan.