0
$\begingroup$

I would like to ask about swap zero curve calculation algorithm used by Bloomberg. Below is a plain vanilla EUR IRS. I want to calculate >= 2 year spot rates from the market rates. I don't know how to bootstrap them for the valuation date = 04/14/2019. The swap pays twice a year on Jan 19 and Jul 19. Below I have attached screenshots of the swap yield curve (with Bloomberg zero rates that I'm trying to replicate) and swap details.

Swap curve details Swap details

Improve this question
$\endgroup$

1 Answer 1

Reset to default
1
$\begingroup$

It seems you are using the same curve for forward and discounting.

The EUR Vanilla Swaps vs 6M actually have yearly payments, so to obtain the discount factors, and after having the DF for year 1, you can sequentially solve for them just using the par swap Rates.

$$DF_n = \frac{1-par_n \times \sum^{n-1}_{i=1} DF_i}{1+par_n}$$

So the DF for year 2 would be:

$$DF_2 = \frac{1-(-0.0019925)\times 1.002337 }{ 1 + (-0.0019925) } = 1.003998$$

Improve this answer
$\endgroup$
3
  • $\begingroup$ Thanks, David. Maybe this is a trivial question, but why this swap has actually yearly payments? $\endgroup$
    – Bart
    Commented Apr 11, 2020 at 18:35
  • $\begingroup$ That just happens to be the market convention for EUR swaps vs 6M. Fixed leg is yearly 30/360 and Euribor 6M leg is obviously half-yeraly, Act/360. So to bootstrap your curve from the par rates, you have to take into account the convention of the instruments you are using. $\endgroup$
    – David Duarte
    Commented Apr 12, 2020 at 8:49
  • $\begingroup$ What is a par rate ? In layman terms $\endgroup$
    – Atul sanwal
    Commented Aug 25, 2021 at 16:32

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.