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I'm trying to understand the bootstrap methodology to construct a zero curve from a par curve in detail. I'm looking for a good source of information, preferably with a detailed example, that discusses the whole procedure from selecting the constituents of the curve, via day count conventions, interpolation assumptions to the actual procedure of bootstrapping. I read

Hull, Options, Futures, and Other Derivatives

but this book only discussed the basics.

Does anyone know a detailed source with a numerical example?

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I would recommend you start with the basics and only then go to detailed examples when understanding bootstrapping.

Important things to remember:

  • The source of information when building a curve are prices of tradable instruments because correct forward estimations will have to be arbitrage free
  • Understand the logic of using different instruments (deposits, fras, futures, par swap rates) to achieve your ultimate goal which is to arrive at zero rates/discount factors
  • After you understand the logic, then you can focus on the details: correct dates, calendars, daycounts, etc

The John Hull book does have a basic example of bootstrapping but understanding the logic is paramount before going into more detailed examples.

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While might not include any detail on bootstrapping, it is an excellent reference for modern curve building. I am talking about the book by Marc Henrard, Interest Rate Modelling in the Multi-Curve Framework.

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