Interesting info about Murex … the system I’m using have actually had the discrete forward approach since the beginning of the “ois discounting era”. I agree this is a much more intuitive way to think about forward tenor rates. The forward rate is basically just interpreted as an index. However, if modeling the rate (as opposed to the spread) oscillation is something to pay attention to, at least, for some interpolation models (and hence possibly crossing tenors).
> how to effectively deal with non-basis instruments (e.g. 3M futures)
Is the problem you see related with the mark-to-market and the convexity adjustment when it comes to the 3M futures ? Apart from this I’m thinking that since the future is fixed against a 3m libor on the final settlement day they could be used on a 3M tenor curve, at least that is what I do.
/Magnus
From: Ferdinando Ametrano [[hidden email]]
Sent: Saturday, March 23, 2013 11:40 AM
To: [hidden email]
Subject: Re: [Quantlib-users] dual bootstrap question
On Fri, Mar 22, 2013 at 8:38 PM, Peter Caspers <[hidden email]> wrote:
Another interesting new development in Murex are so called forward curves which directly interpolate in discrete forwards - since you need one curve per tenor anyway, why not model the market forwards in question directly, giving good control over the quantities you are ultimately interested in. I think I will try an ql implementation of that last point in the near future.
I might have had some role into suggesting that development, as I've advocated that solution multiple times when meeting Murex guys. It looked to me as the best way to avoid the problem of defining the short part of the (discount) curve, e.g. the first 6 months for the Euribor 6M curve.
Anyway I've actually realized that the discrete forward approach is flawed when dealing with micro-issues such as turn-of-year, and most of all the implied basis can have implausible shapes..
Direct modelling of basis is much more natural. The key implementation issue in this case is how to effectively deal with non-basis instruments (e.g. 3M futures) when they are to be preferred because of greater liquidity
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