Is it possible to construct a central bank meeting date curve, using futures prices & OIS rates, in QuantLib? Specifically, I mean a yield curve with flat (constant) forward rates in between meeting dates, and discontinuous moves on meeting dates (or 1 day after I guess, given that typically the rate change applies the next day). If so, how?
$\begingroup$
$\endgroup$
3
-
$\begingroup$ Do you need to distinguish the effective fed funds rate, which the futures reference, from the target rate, which usually stays constant between FOMC meetings (but on rare occasions can change between meetings)? $\endgroup$– Dimitri VulisMay 30, 2022 at 4:19
-
$\begingroup$ Very good question. I want to model the target rate, rather than the effective fed funds rate. $\endgroup$– nickos556May 30, 2022 at 4:27
-
$\begingroup$ I made a typo in my original question so just corrected "spot rates" -> "forward rates". i.e. the YC is composed of many forward rates with 1 day expiry representing the overnight cash target rate. $\endgroup$– nickos556May 30, 2022 at 4:29
Add a comment
|
1 Answer
$\begingroup$
$\endgroup$
From my first line of thought:
- Obtain OIS 1D,1M,2M,...12M
- Use the Fed Funds Target - EFFR spread and apply that spread to each OIS curve.
- Convert the simple 1,2, 3M OIS swaps to 1M, 1M1M, 2M2M forward rate curves. This is a simple process is easily bootstrapped.
- Interpolate (Linear, spline etc.) between each data point.
- In your example- you request the jumps to be after specific "meeting dates". You could iterate through each data point, and if OIS_next - OIS_t > 25bps. You could simply apply a function that increases it after the meeting date (Which is between dates next and t) based on this condition (Assuming no "micro" hikes or ECB style hikes)
