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Advanced EONIA Curve Calibration

15 Pages Posted: 8 Dec 2016  

Ferdinando M. Ametrano

Milan Bicocca University - Department of Statistics and Quantitative Methods; QuantLib; Intesa Sanpaolo Bank; Banca IMI - Intesa Sanpaolo Group

Nicholas Bertocchi

Banca IMI

Paolo Mazzocchi

Deloitte

Date Written: December 5, 2016

Abstract

This work analyzes and proposes solutions for subtle, but relevant, problems related to the EONIA curve calibration. The first issue examined is how to deal with jumps and turn-of-year effects. The second point is related to the problem caused by imperfect concatenation between spot starting OIS and forward starting ECB dated OIS: in order to avoid distortion, a meta-instrument called "Forward Stub" should cover the section between the maturity of the last spot starting OIS and the settlement of the first ECB OIS. Its implied value can be derived assuming a no-arbitrage conditions. The final issue is the empirical evidence that the forward overnight rates are generally constant between ECB monetary policy board meeting dates: because of this, a log-linear discount interpolation is a good fit. Anyway, flat forward rates are hardly realistic on the long end. This is the rationale to suggest the use of a "Mixed Interpolation" which merges two different interpolation regimes. All the algorithms used to perform the analysis are implemented in the open-source QuantLib project.

Keywords: forward rates, Euribor, Eonia, yield curve, discount curve, bootstrapping, OIS, turn of year, jumps, interpolation, QuantLib

JEL Classification: E43, G12, G13

Suggested Citation

Ametrano, Ferdinando M. and Bertocchi, Nicholas and Mazzocchi, Paolo, Advanced EONIA Curve Calibration (December 5, 2016). Available at SSRN: https://ssrn.com/abstract=2881445 or http://dx.doi.org/10.2139/ssrn.2881445

Ferdinando M. Ametrano

Milan Bicocca University - Department of Statistics and Quantitative Methods ( email )

Milano, 20126
Italy

QuantLib ( email )

HOME PAGE: http://quantlib.org

Intesa Sanpaolo Bank ( email )

Italy

Banca IMI - Intesa Sanpaolo Group ( email )

Largo Mattioli 3
Milano, 20121
Italy

Nicholas Bertocchi (Contact Author)

Banca IMI ( email )

Corso Matteotti 6
20121 Milano, 20100
Italy

Paolo Mazzocchi

Deloitte ( email )

Via Tortona, 25
Milano
Italy

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