Re: Rate Inputs to a piecewise Yield Curve

Posted by Piter Dias-4 on Jul 30, 2009; 10:07am
URL: http://quantlib.414.s1.nabble.com/Rate-Inputs-to-a-piecewise-Yield-Curve-tp7711p7713.html

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('[e-mail]');">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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