Mario Melchiori (Universidad Nacional del Litoral, Santa Fe, Argentina) shows the results of a case study on bootstrapping the yield curve, producing zero-coupon and forward rates from market yields. The spreadsheet shows the results of the exercise, with rates and associates discount factors along the term structure. A supplementary spreadsheet shows the UK yield curve and discount factors... **RATE was developed by Rod Pienaar and Moorad Choudhry.** RATE will calculate forward rates based on periods that coincide with the zero curve tenors or allows the user to select the length of the forward
rate period (quarterly, semi-annual and annual). It is common market
practice to calculate each forward period using the curve's tenor points.
The calculation is: (1-DF1/DF2)*1/DCF Where:
DF1 is the discount factor for the earlier date
DF2 is the discount factor for the later date
DCF is the day count factor for the tenor (e.g. Act/360). In the case of the case study undertaken by Mario Melchiori and shown on the accompanying spreadsheet, the forward rate for the 3 day to 1 week period for example would be:
(1-0.999671/0.999220)*(365/4)=4.11859% |