Adding Turn Of Year Rates To A Term Structure

Introduction

Short term fluctuations in interest rates often occur and generate sharp changes in direction of a yield curve that may not be fully detected when using standard linear interpolation. The Ultimo or Turn as this is referred to is supported within Derivity Analytics.

As an example, assume that we want to add a turn point between 30-Dec-04 and 03-Jan-05 into the TULLETT term structure for EURUSD. Note that the broken dates 29-Dec-04 and 10-Jan-05 are initially being calculated using linear interpolation between the 1M and 2M rates.

Adding A Turn Point To A Term Structure

1. Select one of the rates on display.
2. Right-click on the rate and select Configure > Database from the popup menu.
3. In the Database dialog press the New button and select TULLETT Term from the popup menu. New Term appears in the Term text box.




4. Overwrite this with 301204X030105 and press RETURN.




5. A new term labelled Fwd/Fwd appears in the list of terms.




6. You can add data for your new turn point in a number of ways:
• If data is available from market or internal sources, this can be added in the same way as for any other term.
• If there is no data source available for the turn point, you can add a static manual rate but you will have to update it yourself each day.
• Alternatively, you can leave the turn point with no permanent data source and simply enter temporary rates for the turn point each time you restart the application
7. Press Update and Close.

The application will use the turn point when interpolating for dates in between the 1 month and 2 month dates.

Adding Static Turn of Year Data

If you have no live data source for your turn rates you can add static manual rates that persist when the application is restarted:

1. In the Database dialog select the turn point created earlier.




2. Select the Manual button and enter Bid and Ask values.




3. Press Update and Close.

The application will now use the new rates entered for the turn. These rates can be overwritten with temporary rates like any other rate.

Adding Temporary Turn of Year Data

If you have created a turn point but have not added a data source or manual rate for it then Derivity Analytics will show Error for all dates in between 1 and 2 months.

You can enter temporary data for the turn point by adding a forward-forward whose dates match the turn point into FX View as follows:

1. Enter 30DecX03Jan in the left hand column.
2. Enter bid and ask values for the forward-forward created above.

The intermediate dates are now being interpolated using the manually entered turn rates. Note that these rates will be removed when the application is restarted.

To Remove A Turn Point From A Term Structure

The turn point can be removed from the term structure as follows:

1. Select one of the rates on display.
2. Right-click on the rate and select Configure > Database from the popup menu.
3. In the Database dialog select the turn point.




4. Press the Delete button and select Term Fwd/Fwd from the popup menu.
5. The turn point is removed from the list. Press Update and Close.

The application will resume calculating with live market data.