Interpolation Methodology Enhancements

Neil Mathieson. Monday, November 07, 2011

Users are advised that we have enhanced our interpolation methodology to provide smoother forward curves.

Moreover, it is now possible to choose between two methodologies, linear between discount factors or linear between continuous zero rates.

Date of Release

07.11.2011

Products affected

All products in all asset classes.

Known issues

Users of the NPV History report [39] should note that slight differences may exist between this report and the results you see live in TreasuryView™.

This will exist for a short period only as the database is updated with close of day prices using the new methodology.

If you undertake analyses using historic market data (using Settings > Market Data > Retrieve historic market data) this will apply the new methodology e.g. current and historic are directly comparable in live.

Existing users

No action is required on your part, the new functionality was applied   
automatically.

The default setting remains linear between discount factors to ensure continuity.

Historic functionality

Historically our interpolation methodology led to a stepped profile on certain forward curves. It was also impossible for users to choose between alternative methodologies.

New functionality

Following enhancements to our interpolation algorithm TreasuryView™ now has a smoother forward curve profile. This brings the calculation of coupon rates, interest payments and NPV’s into line with other providers.

Users should experience most benefit in the 0 to 30 year range. Further optimization will be undertaken in the 30 to 50 and 50 to 70 year ranges, albeit the latter is subject to certain conjecture.

Taking the GBP 3M curve for illustrative purposes, the old methodology is represented by the blue line, the new methodology by the red.

Interpolation example

Henceforth users can also choose between two interpolation methodologies, linear between discount factors or linear between continuous zero rates.

First select Setup in the portfolio view, then choose General settings. Under Interpolation type select the relevant methodology. Now press Apply, log out and then back in to effect the change.

General settings

Users should note that the default setting is linear between discount factors to ensure continuity with previous methodology.

Further enhancements to Market Data are in development and will be advised shortly. If you require further information please email us at support@treasuryview.com or contact your relationship manager.

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