Hi Vlad
the jumps are modeled as exogenous multiplicative (discount) factor.
Any single jump does generate a spike for that single one day forward
rate, but if you consider a weekly forward rate there will be 7 rates
spiked up, if you consider a monthly forward rate there will be 30
rates spiked up, etc
Roughly speaking the (log) discount is the integral of the forward
rates: if you have a 1M spot rate of 2% and a 30bps jump in between
you won't get daily fwd rates of 2% with a single fwd rate at 2.30%.
Instead you'll get something like flat 1.99% with a spike at 2.29%,
keeping the average at 2%
Hope it helps
ciao -- Nando
> ------------------------------------------------------------------------------
On Thu, Mar 24, 2011 at 7:43 PM, Vlad F. <[hidden email]> wrote:
> Hi,
> I am trying to understand how Jump points work in Piecewise Yield Curve
> My understanding is that a jump point should only effect the day that it’s
> applied on. For example, let say there is a RateHelper instrument going
> from Apr-12-2011 through May-25-2011 with a rate of 1.2% and Jump point with
> a date of May-5-2011 and value of 20 bps expressed as a discount factor.
> What I was expecting to see if I were to extract the daily forward rate is
> for May-5-2011 to be affected by 20 bps.
> What I see is that the jump point has affected the whole period roughly by
> 0.5 bps and March-15-2011 point was affected by 19.5 bps.
> I am attaching a spreadsheet which contains a test cases that I put together
> in trying to understand it.
> Jump_Test.zip ->
> https://docs.google.com/leaf?id=0BwNMjRmDi385MjAwYzNhMTgtNDMxNy00Yzc2LWEwODItMTZlMzZkMDEzN2Fk&hl=en&authkey=CObFm9EN
>
> Any help would be appreciated.
> Thanks,
> Vlad
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