By default, for each currency SDX Interest Rates builds a yield curve based on a number of elements (cash rates, future/FRA/IMM FRA rates, and swap rates).
When creating the yield curve for the currency’s standard index the system ensures consistency of cash and short term forward instruments such as futures and FRAs with the default LIBOR index tenor for each currency. Practically speaking, this means that the default curve setup for the standard USD curve uses cash rates to 3 months (but not 6 or 12 month cash rates), 3m Eurodollar futures, and quoted swap rates vs. 3month LIBOR, while for the standard curve for EUR and GBP, 6month LIBOR/EURIBOR and 6 month FRAs are used at the short end of the curve and quoted swaps vs. 6 month LIBOR/EURIBOR are used at the mid to long end.
However, in the Settings window (see Customizing SDX Interest Rates) you can then edit the elements (and their underlying tenors) as required to meet your needs.
You do this in the Settings window > Yield Curve tab using the Cash tab, the Futures/FRA tab and the Swaps tab as necessary. These tabs give you complete flexibility in choosing the yield curve elements and their underlying tenors.
It is important to note though that defining inappropriate curve elements for the standard yield curve can affect the calibration of the rates. Accordingly, caution is advised when customizing these inputs.
For each currency you can customize the elements as follows:
Cash (or deposit) rates
For the cash rates you can customize which deposit rate tenors are used.
In this tab you can also instruct the system to always use all selected cash rates in the building of a yield curve instead of using the dominant future/FRA/IMM FRA.
The default setting here is the system’s original data precedence rules, i.e., that the tenors selected for the futures/FRA/IMM FRA contracts take precedence over tenors for the cash rates. However, you can instruct the system to instead always use all selected cash rates by clicking the “Always use all selected cash rates” radio button.
For more information on this feature see Understanding the Concept of Data Precedence.
Futures / FRA rates / IMM FRA rates / Short swaps
In this tab you can change which element is to be used, i.e., futures or FRAs or IMM FRAs or, for supported currencies such as USD, EUR, GBP and AUD, short swaps for the 1M yield curve. Subsequently, once you have selected which element to use you can then choose which terms (or underlying instruments) within that element to use.
Which elements (and which underlying instruments within those elements) are available depends of course on the currency you have chosen and the market data available. For example, by default the yield curve for the NOK, DKK and SEK currencies the yield curve is constructed using cash rates, IMM FRA rates and swap rates. However, for each of these currencies you can either instruct the system to not use the IMM FRAs at all or edit which IMM FRAs are used.
In addition, for currencies where the system builds a separate yield curve for each non-standard index as well as for the standard index there is also a dependency between the selected index tenor and the rate types you can choose, and between the selected rate type and the underlying instruments you can choose1. So for example, if you are defining the yield curve for the USD 3m LIBOR you can choose to use futures or FRAs; however, for the USD 6m LIBOR you can only use FRAs. Furthermore, if you have selected a 3m LIBOR index, you can only select 3m FRA instruments, whereas for the 6m LIBOR index you can only select 6m FRA instruments.
If you choose to use futures, you must also select the first future to use and also the maximum number of futures to include.
Swap rates
For the swap rates you can customize which swap rate tenors are used.
For most currencies you can only customize the yield curve for the standard index. However, for the following currencies, in addition to the yield curve for the standard index SDX Interest Rates also builds distinct yield curves for each non-standard index as well which you can then edit:
USD
EUR
GBP
AUD
JPY
CHF
DKK
NOK
SEK
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For a currency’s non-standard index you can customize the cash rates and the futures/FRA rate/IMM FRA rates, but not the swap rates directly. |
To customize the yield curve used for a specific currency:
| 1. | Access the Settings window (see Accessing the Settings Window). |
| 2. | From the View Profile Settings dropdown list select the profile you want to see the settings for. |
| 3. | Click the Yield Curve tab and then the relevant Cash, Futures/FRA or Swaps tab. |
| 4. | Check you have selected the currency for which you want to customize the yield curve. |
| 5. | In addition, if it is a currency for which the system also builds a distinct yield curve for each non-standard index as well as for the standard index you should also select the relevant index tenor. |
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This field is only displayed in the Cash tab and the Futures/FRA tab. |
| 6. | In the Cash tab, Futures/FRA tab and Swaps tab make any changes as required. |
| 7. | If you are in: |
The SD profile you can save these changes to your MyProfile profile (by clicking the Save as MyProfile button and then clicking Yes) or to a public profile (by clicking the Save as Profile button, entering a profile name and user group, and then clicking Save and then OK).
A public profile you can save these changes to your MyProfile profile (by clicking the Save as MyProfile button) or to the current public profile (by clicking the Save as Profile button and then Save and then OK).
Your MyProfile profile you can only save these changes to your MyProfile by clicking the Save as MyProfile button and then clicking Yes.
The changes are saved.