curve_extensionNS: Curve Extension (Swap, Cubic Spline and N-S)

In nathanesau/StocVal: Values embedded options in DB pension plan.

Description

Calculates the curve extension until time 100 using swap (Cubic Spline and N-S)

Usage

curve_extensionNS(termStruct.out, parameters = NS_params)

Arguments

termStruct.out	Contains the linearly interpolated risk free rates from cubic_spline()
params	parameters for the Neilson and Siegel extrapolation method

Details

N-S refers to the Nelson & Siegel Extrapolation for Spot Rates. The formula is: rtm <- BO + B1(1 - exp(-m/tau1))/(m/tau1) + B2((1-exp(-m/tau2))/(m/tau2) - exp(-m/tau2)), where rtm is the spot rate in term m.

The implied forward rate could be calculated by placing the following code into the function:

impliedFR <- numeric(100)

for(i in 0:99) impliedFR[i+1] = longZcb[i+1]/longZcb[i+2] - 1

impliedFR <- c(1/longZcb[1]-1, head(impliedFR,-1))

Value

The curve extension for an additional 70 years (continuous zero rate)

Examples

termStruct.out <- cubic_spline(termStruct)
 termStruct.extension <- curve_extensionNS(termStruct.out)

nathanesau/StocVal documentation built on May 23, 2019, 12:18 p.m.