fwd2spot {QuantBondCurves} | R Documentation |
Forward curve conversion
Description
Uses a recursive method to calculate the implicit spot rates of
a given forward curve. Calculations and formulas based on the definition of
forward rates where \exp{-rT} = \exp{-\int{f(t)dt}}
.
Usage
fwd2spot(dates, fwd, approximation = "constant")
Arguments
dates |
Term structure of rates. |
fwd |
Numeric vector of forward rates to be converted. |
approximation |
String that establish the approximation. Set
|
Details
Requires continuous rates. Recommended that the input forward curve starts with maturity 0, if not, function will approximate zero node as equal to node 1 (first term structure). Output forward curve slightly differs from empirical curve as it calculates an implicit forward curve.
Value
Implicit spot curve based on the input forward rates and input term structure.
Examples
# Inputs for calibration of forward curve
yield.curve <- c(0.015,0.0175, 0.0225, 0.0275, 0.0325, 0.0375,0.04,0.0425,0.045,0.0475,0.05)
names(yield.curve) <- c(0.5,1,2,3,4,5,6,7,8,9,10)
nodes <- seq(0,10,0.5)
# Calibration
fwd <- curve.calibration (yield.curve = yield.curve, market.assets = NULL,
analysis.date = "2019-01-03", asset.type = "IBRSwaps",
freq = 4, rate.type = 0, daycount = "ACT/365", fwd = 1,
npieces = NULL, nodes = nodes, approximation = "constant")
# Forward to Spot
dates <- names(fwd)
fwd2spot(dates, fwd, approximation = "constant")