Re: [Quantlib-dev] Yield Curve Boostraping Improvements

[Simon I. <s.i...@gm...>]

You might want to examine the paper by Hagan&West on smooth yieldcurve
construction. Their convex monotone spline method gives great results.

Simon



On 10/2/07, newbie73 <lui...@av...> wrote:
>
>
> The choppy forward curves appear regardless of which interpolation method
> is
> used.  The term structure of 3m or 6m forward rates results in a saw-tooth
> term structure which deviates from market by huge amounts.
>
> Regarding the knot points, I was referring to picking maturities that do
> not
> necessarily correspond with the chosen instruments.  The methodology we
> use
> here treats the area between each knot point as its own curve (or curve
> function), so you end up with many separate curves which segment the yield
> curve which are then combined to ensure smooth forward curve generation.
>
> The technique itself is quite old and was developed by Lehman in the late
> 80s, but works well in most cases I've encountered.
>
> - Luis
>
>
> Luigi Ballabio wrote:
> >
> > On Mon, 2007-10-01 at 07:20 -0700, newbie73 wrote:
> >
> >> So far I've been quite happy with the functionality in the QuantLib
> >> library - I'd like to start using it to compare to market pricing.
> >> I've found that the curve stripping methodology produces extremely
> >> jagged forward curves which result in poor pricing of several market
> >> structures.
> >
> > Does this depend on the chosen interpolation?
> >
> >> Also, some algorithmic help in dynamically selecting knot points would
> be
> >> much appreciated as well.  The basic idea is the creation of a smooth
> >> interpolation method for a selected set of knot points for a given
> curve.
> >
> > "Selecting knot points" as in "choosing which instruments to use among
> > the available ones" (which is what Nando referred to) or as in "choosing
> > a set of knots freely, i.e., not necessarily corresponding to instrument
> > maturities"?
> >
> > Later,
> >       Luigi
> >
> >
> > --
> >
> > This gubblick contains many nonsklarkish English flutzpahs, but the
> > overall pluggandisp can be glorked from context.
> > -- David Moser
> >
> >
> >
> >
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