17B solver and zero rates calculation
Message #1 Posted by Paolo on 2 Nov 2001, 9:02 a.m.
Anyone could help me in calculating zero rates by bootstrapping the t1 zero from money market rate and then discounting the single coupon of the following year with the appropriate zero rate calculated before?
Example
Consider the following strip of cash (swap) rates annually compounded: 1Y = 3% 2Y = 3.5% 3Y= 4%
By definition the zero rate for t = 1 equals the cash rate, so z1 = r1 = 3%.
Then, to calculate the zero rate for t = 2 (i.e. the yield of a zero coupon bond matrring in 2 years) you can discount the single coupons of a 2 years bond with the relevant zero rate, and then resolving for z2:
100 = 3.5/(1.03) + 103.5/(1 + z2)^2
so, calculating for z2, you obtain z2 = 3.51%
For z3, with similar arguments:
100 = 4.0/(1.03) + 4.0/(1.0351)^2 + 104/(1 + z3)^3
by substituting, z3 = 4.03
I tried to program the solver but the problem I encountered was in storing zero rates for previous periods without input manually the CALC list.
Thanks
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