Forward Rate Effect

Posted by Vlad F. on Apr 28, 2011; 6:07pm
URL: http://quantlib.414.s1.nabble.com/Forward-Rate-Effect-tp8713.html

Hi,

While working with Piecewise Yield Curve, I started seeing a discrepancy between my expected rate and a forward rate that I got back.

I narrowed the scope down to a simple curve with Linear interpolation and Discount factor for Traits.

I constructed two curves: one using FutureRateHelpers and another using DepositRateHelpers. In both cases I extracted the forward rate which I compared to expected rate, then diffing the two. The diff shows a jump in the forward rate on the day when a RateHelper starts and then slowly winding down until the last day when the forward rate matches the input rate. The subsequent jumps in the rate difference get bigger with time.

I am attaching a spreadsheet which contains test cases that I put together in trying to understand it.

Rate_Helper.zip -> https://docs.google.com/leaf?id=0BwNMjRmDi385ZmNmMjFlMjMtNGEzMS00OWNiLWE2OWYtZTQ2YzJhMzMxODNh&hl=en&authkey=CM_t2PcN

 

Any help in trying to understand this effect would be appreciated.

Thanks,
Vlad

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