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Deposit Yield Curve Bootstrapping

We're going to construct in detail a zero-coupon yield curve, called zero curve as well, with deposits by using bootstrapping method.

Deposits description

Suppose we get from market prices the following deposits with maturities inferior or equal to 1 year. The trade date is 2021-05-06.

	instrument code	currency code	settlement days	maturity	rate
0	Deposit1D	EUR	0	1D	0.044
1	Deposit1M	EUR	0	1M	0.045
2	Deposit2M	EUR	0	2M	0.046
3	Deposit3M	EUR	0	3M	0.047
4	Deposit6M	EUR	0	6M	0.049
5	Deposit9M	EUR	0	9M	0.050
6	Deposit1Y	EUR	0	1Y	0.052

Bootstrapping of spot rates

The input market data are deposit rates, so the related rates are a special type of interest rates called zero rates. So, there is nothing to compute. You've just to keep in mind that the deposit rates follow Simple compounding and use the Actual360 as day counter.

Let's note that because there is no calendar used, the related maturity dates will be the addition at the above trade date of the maturity specified in the above table. So, we get:

'2021-05-07'

'2021-06-06'

'2021-07-06'

'2021-08-06'

'2021-11-06'

'2022-02-06'

'2022-05-06'

The zero curve constructed

Below is the table rates with the related computed maturity dates. Let's recall that the deposit rates are expressed with Actual/360 day count convention and Simple compounding.

	instrument code	currency code	settlement days	maturity	maturity date	rate
0	Deposit1D	EUR	0	1D	2021-05-07	0.044
1	Deposit1M	EUR	0	1M	2021-06-06	0.045
2	Deposit2M	EUR	0	2M	2021-07-06	0.046
3	Deposit3M	EUR	0	3M	2021-08-06	0.047
4	Deposit6M	EUR	0	6M	2021-11-06	0.049
5	Deposit9M	EUR	0	9M	2022-02-06	0.050
6	Deposit1Y	EUR	0	1Y	2022-05-06	0.052

<AxesSubplot:xlabel='maturity date'>