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Rate Inputs to a piecewise Yield Curve

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GL_QL

Rate Inputs to a piecewise Yield Curve

Ferdinando Ametrano-4

Re: Rate Inputs to a piecewise Yield Curve

On Wed, Jul 29, 2009 at 3:31 PM, GL_QL<[hidden email]> wrote:
> it often happens that a specified rate (of a deposit, future or swap) will
> create an error when bootstrapping the yield curve [...]
> Can someone explain to me where it comes from ? I don't remember having any
> mathematical condition bootstrapping a yield curve manually.

if you impose non-negative rates (the QL default) the discount curve
must be non-increasing. Improper market data can lead to increasing
curves.

E.g. 3M deposit rate of 7% (discount factor 0.983) followed by 6M
deposit rate of 3% (discount factor 0.985). Equivalent constraints
exist for zero rates, swap rates, FRA, etc

ciao -- Nando

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Piter Dias-4

Re: Rate Inputs to a piecewise Yield Curve

In reply to this post by GL_QL

Fernando,

I think I missed something (mainly because of Brazilian weird curves in the last 15 years).

E.g. 3M deposit rate of 7% (discount factor 0.983) followed by 6M
deposit rate of 3% (discount factor 0.985). Equivalent constraints
exist for zero rates, swap rates, FRA, etc

I didn't make the math, but you mean that, given two nodes, forward rates must not be negative (what makes a lot of sense) or forward rates must be greater or equal to the shortest node?

What is the impact of changing the default in QuantLib (I mean, my change, not the QuantLib project default)? I know it is not quantLib focus but allowing negative rates would allow us (here in Brazil) to use the curves for accounting as well.

Thanks a lot,

----- Original Message ----
From: Ferdinando Ametrano <[hidden email]>
To: GL_QL <[hidden email]>
Cc: [hidden email]
Date: Thu, 30 Jul 2009 11:32:53 +0200
Subject: Re: [Quantlib-users] Rate Inputs to a piecewise Yield Curve

On Wed, Jul 29, 2009 at 3:31 PM, GL_QL<<a href="javascript: window.parent.Mandic.control.composeMessage('gl2244@columbia.edu');">gl2244@...> wrote:
> it often happens that a specified rate (of a deposit, future or swap) will
> create an error when bootstrapping the yield curve [...]
> Can someone explain to me where it comes from ? I don't remember having any
> mathematical condition bootstrapping a yield curve manually.

if you impose non-negative rates (the QL default) the discount curve
must be non-increasing. Improper market data can lead to increasing
curves.

E.g. 3M deposit rate of 7% (discount factor 0.983) followed by 6M
deposit rate of 3% (discount factor 0.985). Equivalent constraints
exist for zero rates, swap rates, FRA, etc

ciao -- Nando

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Luigi Ballabio

Re: Rate Inputs to a piecewise Yield Curve

On Thu, 2009-07-30 at 07:07 -0300, Piter Dias wrote:

> > E.g. 3M deposit rate of 7% (discount factor 0.983) followed by 6M
> > deposit rate of 3% (discount factor 0.985). Equivalent constraints
> > exist for zero rates, swap rates, FRA, etc
> >
> I didn't make the math, but you mean that, given two nodes, forward
> rates must not be negative (what makes a lot of sense) or forward
> rates must be greater or equal to the shortest node?

Non negative.

> What is the impact of changing the default in QuantLib (I mean, my
> change, not the QuantLib project default)?

Shouldn't be harmful, but in your shoes I'd run the test suite after the
change and see what happens.

Luigi

--

I hate quotations.
-- Ralph Waldo Emerson

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Guowen Han

Re: Rate Inputs to a piecewise Yield Curve

In reply to this post by GL_QL

I guess this is because QuantLib does not allow negative forward rate.
The rates are not consistent for deposit rates, futures rates, and swap rates in the 1 year to 3 (maybe 5) year range, which could cause the implied forward rate negative.

I wish this help a little bit.

Thanks,

GL_QL <[hidden email]>

07/29/2009 09:31 AM

To	[hidden email]
cc
Subject	[Quantlib-users] Rate Inputs to a piecewise Yield Curve

Hi all, it often happens that a specified rate (of a deposit, future or swap) will create an error when bootstrapping the yield curve (with an error log file = qlPiecewiseYieldCurveData - 1st iteration: could not bootstrap the 4th instrument, maturity August 7th, 2009: root not bracketed: f[2.22045e-016,0.998945] -> [-2.315622e+017,-2.857143e-003]) Can someone explain to me where it comes from ? I don't remember having any mathematical condition bootstrapping a yield curve manually. Thanks -- View this message in context: http://www.nabble.com/Rate-Inputs-to-a-piecewise-Yield-Curve-tp24719370p24719370.html Sent from the quantlib-users mailing list archive at Nabble.com. ------------------------------------------------------------------------------ Let Crystal Reports handle the reporting - Free Crystal Reports 2008 30-Day trial. Simplify your report design, integration and deployment - and focus on what you do best, core application coding. Discover what's new with Crystal Reports now. http://p.sf.net/sfu/bobj-july _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users

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brb204

Re: Rate Inputs to a piecewise Yield Curve

In reply to this post by Luigi Ballabio

Where can i get a short financial doc on Quantlib yiled curve?

thanks in advance

-bachalakuri

On Thu, Jul 30, 2009 at 4:10 PM, Luigi Ballabio <[hidden email]> wrote:

On Thu, 2009-07-30 at 07:07 -0300, Piter Dias wrote:

> > E.g. 3M deposit rate of 7% (discount factor 0.983) followed by 6M
> > deposit rate of 3% (discount factor 0.985). Equivalent constraints
> > exist for zero rates, swap rates, FRA, etc
> >
> I didn't make the math, but you mean that, given two nodes, forward
> rates must not be negative (what makes a lot of sense) or forward
> rates must be greater or equal to the shortest node?

Non negative.

> What is the impact of changing the default in QuantLib (I mean, my
> change, not the QuantLib project default)?

Shouldn't be harmful, but in your shoes I'd run the test suite after the
change and see what happens.

Luigi

--

I hate quotations.
-- Ralph Waldo Emerson

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Piter Dias-3

Re: Rate Inputs to a piecewise Yield Curve

In reply to this post by GL_QL

Rambo,

Where can i get a short financial doc on Quantlib yiled curve?

Try Luigi's ongoing book Implementing QuantLib: http://luigi.ballabio.googlepages.com/qlbook.

Other really cool way is browsing the test suite. There are many more good examples there than in examples folders.

My few QuantLib contributions, for example, where developed when I tried to extend some test to match some examples from Brazilian market. Enhance test suite is a very good way to learn.

Regards,