Curve Bootstrapping
Solve discount factors sequentially from market instruments.
Build the mental model first.
Each liquid instrument pins another part of the curve once earlier cashflows are already known.
Solve discount factors sequentially from market instruments.
Now make it exact.
Notation and units
Decimal rates and volatilities, year-fraction time and continuous compounding unless stated otherwise.
Every model has a price.
Educational conventions are stated explicitly and may simplify market quotation or settlement details.
Rates are continuously compounded unless the section says otherwise.
Inputs are deterministic in the base model.
“An unstated convention is a future reconciliation break.”— THEQUANTBATEMAN
Why a quant cares.
Produces internally consistent pricing curves from deposits, futures, OIS and swaps.
The hedge has opinions.
Start with the quote convention, then ask which IR risk survives the hedge. A number without its convention is merely well-dressed ambiguity.
Ask Bateman about this model →