Zero curve bootstrapping from coupon bond data given yield
[ZeroRates, CurveDates] = zbtyield(Bonds, Yields, Settle,
Coupon bond information
used to generate the zero curve. An n-by-2 to n-by-6 matrix
where each row describes a bond. The first two columns are required;
the rest are optional but must be added in order. All rows in Bonds must
have the same number of columns. Columns are [Maturity CouponRate Face Period Basis
Maturity date of the bond, as a serial date number. Use datenum to convert date strings to serial date numbers.
Coupon rate of the bond, as a decimal fraction.
(Optional) Redemption or face value of the bond. Default = 100.
(Optional) Coupons per year of the bond, as an integer. Allowed values are 0, 1, 2 (default), 3, 4, 6, and 12.
(Optional) Day-count basis of the bond.
For more information, see basis.
(Optional) End-of-month flag. This flag applies only when Maturity is an end-of-month date for a month having 30 or fewer days. 0 = ignore flag, meaning that a bond's coupon payment date is always the same day of the month. 1 = set flag (default), meaning that a bond's coupon payment date is always the last day of the month.
Column vector containing the yield to maturity of each bond in Bonds, respectively. The number of rows (n) must match the number of rows in Bonds. Yield to maturity must be compounded semiannually.
Settlement date, as a scalar serial date number. This represents time zero for deriving the zero curve, and it is normally the common settlement date for all the bonds.
(Optional) Scalar that sets the compounding frequency per year for the output zero rates in ZeroRates. Allowed values are:
Semiannual compounding (default)
Compounding three times per year
[ZeroRates, CurveDates] = zbtyield(Bonds, Yields, Settle, OutputCompounding) uses the bootstrap method to return a zero curve given a portfolio of coupon bonds and their yields. A zero curve consists of the yields to maturity for a portfolio of theoretical zero-coupon bonds that are derived from the input Bonds portfolio. The bootstrap method that this function uses does not require alignment among the cash-flow dates of the bonds in the input portfolio. It uses theoretical par bond arbitrage and yield interpolation to derive all zero rates; specifically, the interest rates for cash flows are determined using linear interpolation. For best results, use a portfolio of at least 30 bonds evenly spaced across the investment horizon.
An m-by-1 vector of decimal fractions that are the implied zero rates for each point along the investment horizon represented by CurveDates; m is the number of bonds of different maturity dates. In aggregate, the rates in ZeroRates constitute a zero curve.
If more than one bond has the same maturity date, zbtyield returns the mean zero rate for that maturity. Any rates before the first maturity are assumed to be equal to the rate at the first maturity, that is, the curve is assumed to be flat before the first maturity.
An m-by-1 vector of unique maturity dates (as serial date numbers) that correspond to the zero rates in ZeroRates; m is the number of bonds of different maturity dates. These dates begin with the earliest maturity date and end with the latest maturity date Maturity in the Bonds matrix. Use datestr to convert serial date numbers to date strings.
Given data and yields to maturity for 12 coupon bonds, two with the same maturity date; and given the common settlement date.
Bonds = [datenum('6/1/1998') 0.0475 100 2 0 0; datenum('7/1/2000') 0.06 100 2 0 0; datenum('7/1/2000') 0.09375 100 6 1 0; datenum('6/30/2001') 0.05125 100 1 3 1; datenum('4/15/2002') 0.07125 100 4 1 0; datenum('1/15/2000') 0.065 100 2 0 0; datenum('9/1/1999') 0.08 100 3 3 0; datenum('4/30/2001') 0.05875 100 2 0 0; datenum('11/15/1999') 0.07125 100 2 0 0; datenum('6/30/2000') 0.07 100 2 3 1; datenum('7/1/2001') 0.0525 100 2 3 0; datenum('4/30/2002') 0.07 100 2 0 0]; Yields = [0.0616 0.0605 0.0687 0.0612 0.0615 0.0591 0.0603 0.0608 0.0655 0.0646 0.0641 0.0627]; Settle = datenum('12/18/1997');
Set semiannual compounding for the zero curve.
OutputCompounding = 2;
Execute the function zbtyield which returns the zero curve at the maturity dates. Note the mean zero rate for the two bonds with the same maturity date.
[ZeroRates, CurveDates] = zbtyield(Bonds, Yields, Settle,... OutputCompounding)
ZeroRates = 0.0616 0.0603 0.0657 0.0590 0.0649 0.0650 0.0606 0.0611 0.0643 0.0614 0.0627 CurveDates = 729907 730364 730439 730500 730667 730668 730971 731032 731033 731321 731336
Fabozzi, Frank J. "The Structure of Interest Rates." Ch. 6 in Fabozzi, Frank J. and T. Dessa Fabozzi, eds. The Handbook of Fixed Income Securities. 4th ed. New York: Irwin Professional Publishing. 1995.
McEnally, Richard W. and James V. Jordan. "The Term Structure of Interest Rates." Ch. 37 in Fabozzi and Fabozzi, ibid.
Das, Satyajit. "Calculating Zero Coupon Rates." Swap and Derivative Financing. Appendix to Ch. 8, pp. 219-225. New York: Irwin Professional Publishing. 1994.