Re: [Quantlib-dev] Yield Curve Boostraping Improvements

[Bianchetti M. <mar...@ba...>]

Yes, I confirm the Hagan-West paper as a key reference.
Luis, is the method you mention published somewhere ?
Ciao
Marco
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	-----Original Message-----
	From: qua...@li...
[mailto:qua...@li...] On Behalf Of Simon
Ibbotson
	Sent: 02 October 2007 15:03
	To: newbie73
	Cc: qua...@li...
	Subject: Re: [Quantlib-dev] Yield Curve Boostraping Improvements
=09
=09
	You might want to examine the paper by Hagan&West on smooth
yieldcurve construction. Their convex monotone spline method gives great
results.
	=20
	Simon


	=20
	On 10/2/07, newbie73 <lui...@av...> wrote:=20


		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=20
		term structure which deviates from market by huge
amounts.
	=09
		Regarding the knot points, I was referring to picking
maturities that do not
		necessarily correspond with the chosen instruments.  The
methodology we use=20
		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.=20
	=09
		The technique itself is quite old and was developed by
Lehman in the late
		80s, but works well in most cases I've encountered.
	=09
		- Luis
	=09
	=09
		Luigi Ballabio wrote:
		>
		> On Mon, 2007-10-01 at 07:20 -0700, newbie73 wrote:=20
		>
		>> 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=20
		>> 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=20
		>> 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=20
		> 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,=20
		>       Luigi
		>
		>
		> --
		>
		> This gubblick contains many nonsklarkish English
flutzpahs, but the
		> overall pluggandisp can be glorked from context.
		> -- David Moser
		>
		>
		>
		>
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