When it comes to building a yield curve out of bond prices, QuantLib can handle both non-parametric and parametric methods, both deliverable to Excel through Deriscope. The former have been demonstrated at my articles Yield Curve Building in Excel using Bond Prices (QuantLibXL vs Deriscope and Bootstrapping in Excel a Yield Curve to perfectly fit B...
With this article I want to show you how to create a yield curve in Excel using the open source QuantLib analytics library, when the input market data are deposit rates – such as Libor rates -, which are a special type of interest rates called zero rates. Table Of Contents Deposit Contract Description What is a Yield Curve?Why do we ne...
With this article I want to show you how to create a yield curve in Excel using the open source QuantLib analytics library, when the input market data are forward rates. My previous article focused on building a yield curve in Excel out of deposit rates in general and Libor rates in particular. These rates cover the short range of the maturity spec...
With this article I want to show you how to create a yield curve in Excel using the open source QuantLib analytics library, when the input market data are futures prices. The futures convexity will be taken into account. I explained how you may build a yield curve in Excel out of forward rates in my previous article. In reality, forward rates are s...
With this article I want to show you how to create a yield curve in Excel using the open source QuantLib analytics library, when the input market data are swap rates. I will also show you how to apply dual bootstrapping when an exogenous yield curve is present. For short term maturities – typically less than a year – the yield curve may be built ou...
With this article I want to show you how to create a yield curve in Excel using the open source QuantLib analytics library, when the input market data are a mixture of deposit rates, futures prices and swap rates. I have already written how you may build a yield curve using a single type of market instruments, such as deposits, futures or swap...
With this article I want to show you how to create a yield curve in Excel by bootstrapping bond prices, using the open source QuantLib analytics library. I will present both alternative spreadsheet interfaces to QuantLib, which are the QuantLibXL and Deriscope. For a production-ready setup using actual Bloomberg quotes of US Treasuries, look at Boo...
Both the Nelson Siegel method and its Svensson extension are very popular among central and other banks when the time spectrum of interest rates needs to be derived from market bond prices. If you are interested in non-parametric methods favored by relative value traders as they provide an exact fit to observed bond prices, these have been demonstr...
Long are the dates when all-purpose risk free yield curves were produced out of deposits, futures and swaps. Since the credit crisis of 2007/08, banks realized they should use different curves for different purposes. In the intervening years, quants have proven mathematically that uncollateralized contingent flows should be discounted using a curve...
Assume you possess Nd units of a currency DOM regarded as domestic currency. For example, you live in the US and hold 1,000 USD, ie. Nd = 1,000 and DOM = USD. For whatever reasons, you want to replace this money with their equivalent number of units Nf of another currency FOR regarded as foreign currency. For concreteness think of FOR like if it w...
The basic concepts of spot fx rates, forward fx contracts, fx swaps and the construction of foreign yield curves out of fx forward rates have been described in detail in my previous fx rates article. While these instruments cover the short end of the maturity spectrum – typically about a year -, the tenor of so-called currency swaps (also known as...
Up until the financial crisis of 2008, the price calculation of an interest rate swap involved only the so-called Libor curve. The latter was essentially the discount factors (or equivalently zero rates or forward rates) implied by market-traded instruments, such as deposits, futures, forwards and swaps. The Libor curve was used to derive everythin...
I have already explained in my earlier yield curve building post how one can use the Excel Deriscope addin to derive the discount factors and zero rates implied by any given market rates of deposits, futures and swaps. At another post about dual bootstrapping, I calculated in Excel the price of an actual 50-year EUR collateralized swap held by...
Until the 2007-08 financial crisis, forward interest rates of any tenor had been calculated off one single yield curve. In the US, traders had been building one USD yield curve out of market-traded deposits, futures and fixed-to-3M-Libor swaps and used that curve for all purposes involving interest rate calculations, such as extracting discount fac...
Before the 2007-08 financial crisis, all swap cash flows were discounted with the same yield curve used in "forecasting" the future Libor rates and thus the amounts of the floating cash flows. At any given time, this yield curve was constructed so that it reproduced the market prices of the swaps traded at that time. After its construction, the yie...
Last week I described the unique problem faced by interest rate swap traders when the collateral is kept in a currency different than the one where the swaps are denominated. You may want to visit that post for details on how the appropriate discounting (basis) curve in the Mexican case is constructed out of several market rates that include t...
In my post about USD Interest Rate Swaps in Excel, I have explained in detail how to calculate the price and risk of a single USD interest rate swap using a multi-curve approach and actual market data from Bloomberg as of 22 May 2019. A comparative analysis between the single-curve and multi-curve approach has been laid out in my post focusing on s...
The markets expect that Libor will be gradually phased out as more investors and lenders prefer financial products tied to the Secured Overnight Financing Rate (SOFR) rather than the USD London Inter-bank Offered Rate (LIBOR). The main reason for this ongoing exodus is the expected cessation of the daily announcements of the interbank lending rates...
In my previous article about building a SOFR yield curve in Excel using QuantLib and Deriscope I was confronted with an unexpected result concerning the short term – less than two years – section of the curve that exhibited a strong oscillatory behavior. In this post I will show how to smooth out this front section of the curve and investigate...
I have already described the bootstrapping method for building a yield curve from various instrument types in the yield curve articles category. In particular, my post on Yield Curve Building in Excel using Bond Prices (QuantLibXL vs Deriscope) demonstrates how this is done in practice using a simplified theoretical setup consisting of three m...
