Expert contributions
Autor: Natasha Kozul PhD
Summary: Yield curve is the relationship between the interest rate (or cost of borrowing) and the time to maturity of the debt for a given borrower in a given currency. By its definition, there is no single yield curve describing the cost of funds for all market participants. The most important factor in determining a yield curve is the currency in which the securities are denominated. Within the same currency, different institutions borrow money at different rates, depending on their credit rating. Even though the particulars of construction methodology are proprietary to each investment bank, there is a convention followed by all when it comes to choice of instruments and general construction principles. In this paper several construction methodologies are described from the standard “swap” curve to the basis curve.