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Zero Curve - Example

Generally a zero curve will consist of three columns, Date, Rate, and Discount Factor. Note however that it is not compulsory to include both Rates and Discount Factors. The number of rows is unlimited, although excessively large curves (e.g. 30,000 rows) may generate an error.

 

The zero curve below consists of three columns by 18 rows. The 'Days' column is used to determine the Discount Factors, but is not required as a zero curve input.

When entering a zero curve into a function, reference the appropriate parameter(s) to the cells containing the curve, i.e., cells E9:G26 in the above example. This is demonstrated in the following example which has the RiskFree parameter derived from the above zero curve (see oBS( ) Function):

=oBS(1, "1/4/02", "1/4/03", 50, 60, 0.25, E9:G26, 0)

 

Alternatively, the above curve could have been entered as either of the following two curves, where in each instance, either the Rates or the Discount Factors have been excluded:

 

When entering zero curves with no discount factors, the curve can be referenced as either 2 or 3 columns. That is, both of the following methods are acceptable for including zero curve 2 in the following Black Scholes option pricing function:

=oBS(1, "1/4/02", "1/4/03", 50, 60, 0.25, E9:F26, 0)

=oBS(1, "1/4/02", "1/4/03", 50, 60, 0.25, E9:G26, 0)

 

However, zero curve 3, which has no rates but discount factors, must be referenced with all three columns included. That is:

=oBS(1, "1/4/02", "1/4/03", 50, 60, 0.25, E9:G26, 0)

 

  • If zero rates are not supplied by the user but are needed in the chosen function, the zero rates will be interpolated from the supplied discount factors.
  • The same applies for discount factors.

See Also

Entering Curve Objects

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