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Swap Curve

Swap rates are incorporated into the integrated zero curve using a basic bootstrapping technique (linear par). The number of output rates extracted from the swap curve is dependent on the frequency parameter supplied with the input curve: for example, if that parameter is "Semi-Annual", then the output curve will include a rate that coincides with the semi-annual payment dates of the underlying swaps. The output rates will continue out to the maturity date of the longest-dated input swap rate.

 

The basic steps involved in constructing the output rates from the swap curve are as follows:

Step

Direction

 

.

 

1

Based on the input parameters associated with the swap curve, determine the vector of dates for which an output zero rate and discount factor will be generated.

 

2

Interpolate an input swap rate for each of those dates that do not coincide with an input swap rate. This is based on linear interpolation.

 

3

Use the bootstrapping technique to generate the discount factor that is appropriate for each of the output dates.

 

4

Convert the discount factor for each output point into an equivalent zero rate (with Actual/365 basis).

 

 

 

 

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