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Questions about qlInterpolatedYieldCurve & qlYieldTSForwardRate of QuantLibXL-1.5.0

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Boris Chow

Questions about qlInterpolatedYieldCurve & qlYieldTSForwardRate of QuantLibXL-1.5.0

Dear all,

I am new to the list and would like to query about generating the yield curve object and way to generate forward rate.

I have tried to use the excel addin of QuantLibXL-1.5.0

I find that it is using Forward rate (cell containing G10) to create yield curve object (cell D5), and then use the same object to retrieve forward rate (cell N10). However, it is funny that the rates are different with an extent of 0.5% (the cells are highlighted in yellow). I tried to play around different combination of last 2 parameters of qlYieldTSForwardRate but it cannot succeed.

Please kindly advise the reason behind.

Many thanks,

Boris

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YieldTermStructures.xlsx (27K) Download Attachment

Luigi Ballabio

Re: Questions about qlInterpolatedYieldCurve & qlYieldTSForwardRate of QuantLibXL-1.5.0

Hello,

it seems to be a side-effect of the way we're calculating forward rates. In the base YieldTermStructure class, where the calculation is defined, the forward rate is defined basically as the numerical derivative of the zero rate (unfortunately, we didn't provide a way to override the calculation, for instance to take into account that the curve has the forwards available for interpolation). The numerical derivative at time T is calculated as [f(t+dt) - f(t-dt)]/(2*dt), which at the nodes has the unfortunate effect of averaging the forward before the node and the one after the node. You can check this by asking for the forward rate one day before the node and one day after; those two will have the values you expect, and the value at the node will be the average.

I'm afraid there's no easy way out of this. The good news is that the discount factors and the zero rates are correct even at the nodes, so instrument pricing will work correctly. As for retrieving the forward rates, if you know that you're in this particular case, you can just ask for them at the dates one day after the nodes.

Hope this helps,

Luigi

On Sat, Jul 11, 2015 at 4:55 PM Boris Chow <[hidden email]> wrote:

Dear all,

I am new to the list and would like to query about generating the yield curve object and way to generate forward rate.

I have tried to use the excel addin of QuantLibXL-1.5.0

I find that it is using Forward rate (cell containing G10) to create yield curve object (cell D5), and then use the same object to retrieve forward rate (cell N10). However, it is funny that the rates are different with an extent of 0.5% (the cells are highlighted in yellow). I tried to play around different combination of last 2 parameters of qlYieldTSForwardRate but it cannot succeed.

Please kindly advise the reason behind.

Many thanks,
Boris

------------------------------------------------------------------------------
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Configured For All Businesses. Start Your Cloud Today.
https://www.gigenetcloud.com/_______________________________________________
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