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CCIL has developed a Zero Coupon Sovereign Rupee Yield Curve by following a
parametric approach, based on Nelson & Siegel equation. The Nelson &
Siegel equation is as under :
Spot Rate = ß0 + (ß1+ß2) * [(1-exp (-m/ t)]/(m/t)– ß2*exp (-m/ t)
where,
ß0 is the contribution of long term component
ß1 is the contribution of short term component
ß2 indicates the contribution of medium term component
t is the decay factor and m is the maturity
ß2 & t determine the shape of the curve
For generation of the yield curve, CCIL uses the trade data for trades in
Central Government Securities and T- bills conducted through / reported in
RBI’s Negotiated Dealing System (NDS). The process followed is as under:
i) Trade data is subjected to a filtering process for removal of market
outliers
ii) Each traded security is broken down into its constituent cash flows
iii) An optimisation process is run to minimise the sum of the square of price
errors weighted with inverse of respective durations to arrive at the
parameters for Nelson Siegel curve based Zero Coupon Yield Curve.
Assessment of Fit
The yield curve generation process as described above has been subjected by us
to rigorous testing. Its sustainability under volatile market conditions has
also been analysed by generating yield curves for the most volatile days for
the period over past two years. The price errors (i.e. the difference between
the traded price & the model price of a security) were found to be in the
range of Rupees 0-2 (at times price errors of around Rs.3/- observed in case of
very illiquid securities), while in terms of average of square of price error
per trade, it worked out to be in the range of 30 paisa to Re 1.
Release of ZCYC parameters
CCIL releases data in regard to its Zero Coupon Yield Curve on a daily basis
(expected by about 7 p.m. every day). The release is in the form of an Excel
file in downloadable form. Anyone desirous of using this information may
download the file and use the information. In the same file, two other sheets
would be available for comparing current day’s ZCYC with ZCYC of any previous
day (upto previous 100 working days)- sheet ‘ZCYC Comparison’ for comparing
rates and sheet ‘Comparative Chart’ for graphic comparison. Another sheet,
‘Valuation of Portfolio, is also made available which can be used for valuation
of security holdings at current prices as described below.
Valuation of member portfolios of holdings in securities
The Portfolio Valuation sheet provided with the yield curve allows valuation
of holdings for upto 1000 securities (Central Government Securities and
T-bills). For valuation, it takes weighted average price for any security. If
weighted average price is not available, valuation is based on ZCYC based model
price for the day.
For valuation of a State Government securities (if entered in the sheet), it
takes weighted average price, if available. If weighted average price is not
available, the security is valued as if it is a Central Government Security and
to that extent, there could be price error (as State Government securities are
normally traded at a discount as compared to the prices based on Sovereign
Yield Curve). It may be noted that as CCIL updates ZCYC parameters on a daily
basis, the downloaded file can be used only on the day of download.
[Disclaimer: CCIL takes due care and caution in compilation of data and
compute various parameters/prices etc. and also takes reasonable care to make
the data available in time. CCIL however does not guarantee accuracy, adequacy
or completeness of data/prices/computation and is not responsible in any way
for making the data/prices available on a regular basis or for any error or
omission or for the results obtained from the use of such information.]