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Questions tagged [yield-curve]

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1answer
206 views

Curve steepner and convexity

Can someone please explain why a curve steepener trade has a negative convexity? And are the gains from the steepness of the curve offset by the negative convexity?
0
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1answer
99 views

Spreadlock derivatives

I would like to price a spreadlock forward swap and a spreadlock swaption but I don't find in the web any research article. Would you please provide me with some freely accessible papers on the web ? ...
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0answers
116 views

basic difference between interest rate models

I am reading up on interest rate models, but currently confused about difference in the two types of models: no arb models like ho-lee, vasicek etc. others like nelson siegel, pca models etc. While ...
1
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2answers
1k views

Discount Factors to Zero Rates

I have obtained a Ibor-6Months curve using bootstrapping techniques. For the short-term of the curve I used spot, for the middle-term FRAs and for the long-term IRS. The curve that I have obtained is ...
4
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1answer
680 views

Duration: Parallel shift in yield curve assumption

General Intro I'm trying to really understand the assumptions of dollar duration for a portfolio of bonds. In particular I don't fully understand that the assumption that there are parallel shifts ...
4
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1answer
3k views

Dual Curve Bootstrapping - When to OIS discount?

I am a new quant and I am trying to understand some of the specifics of dual curve bootstrapping. For concreteness, suppose I want to build a Libor forward curve. From what I understand OIS ...
3
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0answers
87 views

How is the integral relationship between current yield curve and forward yield curve derived?

$$y(\tau) = \frac{1}{\tau} \int_{0}^{\tau} du \Big(f(u)\Big)$$ As far as I understand the forward rate is the future rate based on the expectation hypothesis. But it is unclear how many years into the ...
2
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0answers
37 views

Custom Frequency termstrc Package

Termstrc package in R by default uses yearly coupon frequencies. Dataset i am working with is semi-yearly coupon bonds. Here are the variables it takes into the model ...
2
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0answers
171 views

Relative order of curve for coupons for Upward Sloping Yield

Why would the forward curve be above zero and coupon bond yield be at the bottom for a sloping up yield curve.
2
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2answers
291 views

Corporate Bond Yield Curve

I am an intern in a mutual fund and they have asked me to create in house yield curve for different type bonds in their portfolio I need to know on what basis are different yield curves made. For ...
1
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1answer
95 views

Construction of synthetic deposits

I'm looking at the paper "Everything You Always Wanted to Know About Multiple Interest Rate Curve Bootstrapping But Were Afraid To Ask". It describes how to construct synthetic deposits in order get a ...
2
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1answer
291 views

Why we should specify the evaluation date when using Quantlib yield curve? And why updating the evaluation Date is time consuming

I was runing some tests using the yield curve structure in quantlib mainly: PiecewiseYieldCurve It seems that I have to fix the evaluation date using such a line : Settings::instance().evaluationDate(...
2
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1answer
2k views

Yield curve trading

I have a problem in understanding following strategies: bullish flattening trades bearish flattening trades bullish steepening trades bearish flattening trades Can anyone give me an explanation ...
1
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2answers
652 views

Principal component analysis for yield curve

I have Treasury yield data across 11 maturities for past 1 year. I have used a code in MATLAB for PCA on change in yield curve. Now, I have covariance matrix of daily/monthly yield curve changes, ...
1
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1answer
809 views

Details of calibration of Hull-White model

Consider the one-factor Hull-White model $$ \mathrm{d}r(t) = (\theta(t)-\kappa r(t))\mathrm{d}t + \sigma\mathrm{d}W(t) $$ When one calibrates the model to market data one chooses $$ \theta(t) = \...
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2answers
106 views

Inverted Yield Curve [closed]

In an article of FT today, Matthew Klein writes, "The yield curve represents the cost of borrowing over different amounts of time. Lenders generally prefer getting their money back sooner rather than ...
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0answers
182 views

Yield curve estimaton using linear regression

Assuming that there are not any zero coupon bonds in the market, then someone has to use the prices of regular bonds with same maturity and characteristics (risk,issue etc.) to obtain the yield curve. ...
1
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1answer
890 views

High convexity vs low convexity bond definition

Isn't high convexity always better than low convexity bond from the formula that $$\frac {ΔB} B=-D \frac {Δy} {1+y} + \frac 1 2 CΔy^2$$ Since $\frac 1 2 CΔy^2$ is positive no matter what so the price ...
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2answers
830 views

Accrual in Default Derivation of Credit CDS Curve

In Trading Credit Curves Part I by JP Morgan we have that each point on a credit (CDS) curve represents: $$PV(\text{Fee Leg}) = PV(\text{Contingent Leg})$$ which is $$S_n \sum_{i=1}^{n}\Delta_i ...
1
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1answer
438 views

Build a swap curve / Swap Hedging

I’m going through the exercise of building a swap curve. I understand I need libor rates for the short-end, futures for the medium-end, and swap rates for the long-end. Should I be using bid, mid, ...
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1answer
76 views

Spot period considerations in yield curves

Textbook explanations of yield curve modelling discuss bootstrapping or other methods. If we take sovereign bonds for deriving the curve, we would get price data from a market data provider like ...
1
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2answers
131 views

Intuitive explanation of geometric mean

Suppose that the 10 Year Treasury Yield Rate varies every trading day during the year X1 (which in practice is accurate) what is the intuitive explanation behind calculating the geometric mean using ...
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1answer
114 views

Deriving the Forward Rate Formula from the Expectation Hypothesis

The Expectation Hypothesis (EH) states that the current spot yield for any of the maturities is the geometric average of current and future short rates. $$\Big(1 + y(t=0, m=\mu) \Big)^{\mu} = \prod_{t=...
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0answers
77 views

How do traders determine when points in a yield curve are at 'fair value'?

While on my last day on an internship last summer, I heard on the morning call a UK rates trader say something along the lines of: "Most of the curve is at fair value at the moment, so nothing ...
1
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2answers
306 views

Simulation curves; PRIIPS category 3

Once the yield matrix has been computed, the eigenvectors must be calculated to project the yield matrix on the 3 main dimensions. Tehen is wasted to calculate the yield matrix to be used for the ...
6
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2answers
4k views

Principal Component Analysis of yield curve change

Following pictures are the Principal Component Analysis for the yield curve change from https://www.coursera.org/learn/interest-rate-models/lecture/ZHMM6/principal-...
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0answers
141 views

How are short rate models used to construct the whole of the yield curve? [closed]

There are a number of short rate models that give $r(t)$. How can those be used to construct the whole of the yield curve $y(t,T)$ (where $y(t, 0) = r(t)$)?
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2answers
4k views

Do we use the Nelson-Siegel model to calculate the yield curve?

Suppose we are to plot a yield curve for a list of bonds. Do we use the Nelson-Siegel fitted yield curve since that's with the case for zero coupon bonds? Or do we in fact use bonds with different ...
0
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2answers
471 views

Yield curve interpolation

I'm trying to build a zero/spot curve and have two pieces of information. 1yr zero coupon swap = 1% 3yr zero coupon swap = 3% My initial guess was to linearly interpolate which produces a linear ...
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1answer
7k views

Discount Curve Vs Forward Curve

This could be a trivial question, but would I like to clear the concepts. Our firm started sourcing the Murex Trades which has all the variety of Derivative products. I noticed that the Curve ...
1
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2answers
1k views

Is the “swap curve” synonymous with the “yield curve”?

Looking at the swap curve construction here: http://www.bankofcanada.ca/wp-content/uploads/2010/01/wp00-17.pdf it seems to be constructed in an identical fashion as the yield curve as described here:...
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1answer
486 views

Interest rate curve in option pricing

When pricing an equity option we calculate risk-free rate by interpolating one of the curves below for time-to-maturity T. What is the difference between the following curves and in what case each is ...
1
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0answers
237 views

Decreasing Forward FX rate curve

i've constructed a Forward FX curve using the formula: $F= Spot \frac{(1+I_b*n/N)}{(1+I_c*n/N)}$ when i get these Forward rates for 1 month, 3, 6 till 1 year i got a decreasing forward Fx Curve How ...
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1answer
120 views

How are LIBOR rates beyond 12M arrived at? [closed]

I understand LIBOR rates quoted on a daily basis upto 12 M tenors. But how are rates beyond 12M tenor estimated. I got this question from an interviewer.
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1answer
103 views

Libor futures rolling adjustment & curve building

Can futures rolling affect curve constructing? Let's say that i'm using future 1 and 2 to construct the short end of my curve. As i understand it, rolling will create volatility (as volumes spike), ...
1
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1answer
119 views

Interest rate risk using copulas

In order to simulate an interest rate yield curve, can I just estimate a covariance matrix of historical key rate data, simulate with a normal copula, spline my simulated key rates, then price my ...
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1answer
1k views

Yield curve: Turn of year effect jump calculation

I'm trying to get the values for the turn of year jumps that can be found at section 4.8 of Everything You Always Wanted to Know About Multiple Interest Rate Curve Bootstrapping But Were Afraid To ...
4
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3answers
2k views

What curve are you shifting when you calculate DV01 for a swap?

I understand that a general swap has 4 curves attached to it: the flat forecast curve associated with the fixed leg, the forecast curve associated with the floating leg, the fixed leg discount curve ...
3
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0answers
338 views

Is there really a negative roll yield for futures in contango?

I am trying to wrap my head around how ETFs that track futures work (whether its USO tracking WTI futures or VXX tracking VIX futures). I have read online about how for normal contango environments, ...
0
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1answer
105 views

Difference between a 3-months UK nominal spot rate and a 3-months UK treasury bill discount rate?

I am trying to collect data I could use for calibration of a short-rate modeling process, so I need data which represents the historical short-rates. On the Bank of England webpage I came across the ...
1
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1answer
85 views

Why should central bank intervention cause inverted yield curve to be less effective as a recession signal?

Pimco's new CIO Dan Ivascyn believes that the inverted yield curve has become less effective as a signal of impending recession. https://www.bloomberg.com/news/articles/2017-06-22/pimco-s-ivascyn-...
1
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1answer
51 views

Discretizing the conditional variance in the Arbitrage Free Dynamic Nelson Siegel model

for my thesis I am trying to fit the correlated factor arbitrage free dynamic Nelson Siegel model to yield data. I use the Kalman filter to model this but since the model is in continuous time, I need ...
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0answers
495 views

Equations for multicurve calibration with OIS discounting

I am trying to calibrate my forecast and discount curves using the multi-curve approach with OIS discounting. To do so, I have a implemented multivariate Newton-Raphson root finder. I am finding a bit ...
0
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1answer
398 views

Yield curve and bid ask spread

For the valuation of a bond, is the bid ask spread somehow reflected in the yield curve? Considering zero coupon bond, one would expect to have an bid price and ask price and therefore if I am ...
1
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1answer
169 views

Does the YTM for a zero coupon treasury equal the treasury yield curve value for it's maturity?

The title is my question. I think the answer is yes, but I am unsure about it.
4
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1answer
480 views

Fitting the Term structure of Discount Bonds with Ho-Lee

I was now reading a book on interest rate modelling, and I am having trouble picturing the practical issues of model calibration with the Ho-Lee model. Apparently, one of the drawbacks of this model ...
0
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1answer
519 views

Pricing zero coupon bonds on a yield curve

I'm getting confused about how I should price the current price of a zero coupon bond when there are several yields to choose from. For instance, lets say that there is an upward sloping yield curve. ...
1
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1answer
922 views

Applications of PCA to yield curve analysis

One of the applications of Principal Component Analysis in Finance is to analyse the shape of the yield curve. But what conclusions can be drawn exactly from performing this exercise? Does it help us ...
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0answers
145 views

Daily yield to maturity using `uniroot` in R: error

So, I'm trying to compute the daily yielt to maturity on basis of data retrieved from Datastream. The data comprises EMU Treasury bonds with Prices, Coupon and Maturity date. In R the matrices are ...
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0answers
28 views

Multi-factor affine yield models reference (a la Duffie and Kan)

http://www.darrellduffie.com/uploads/pubs/DuffieKan1996.pdf I was trying to read above paper on the topic of multi-factor affine models, but I presume the contents have been dealt with more ...