smith_wilson_funcs#

Smith-Wilson functions

Functions

SWCalibrate(r, M, ufr, alpha)

Calculate the calibration vector using a Smith-Wilson algorithm

SWExtrapolate(M_Target, M_Obs, b, ufr, alpha)

Interpolate or/and extrapolate rates for targeted maturities using a Smith-Wilson algorithm.

SWHeart(u, v, alpha)

Calculate the heart of the Wilson function.
SWCalibrate(r, M, ufr, alpha)[source]#

Calculate the calibration vector using a Smith-Wilson algorithm

b = SWCalibrate(r, T, ufr, alpha) calculates the vector b used for interpolation and extrapolation of rates.

Parameters:

  • r – n x 1 ndarray of rates, for which you wish to calibrate the algorithm. Each rate belongs to an observable zero-coupon bond with a known maturity. Ex. r = [[0.0024], [0.0034]]

  • M – n x 1 ndarray of maturities of bonds, that have rates provided in input (r). Ex. u=[[1], [3]]

  • ufr – 1 x 1 floating number, representing the ultimate forward rate. Ex. ufr = 0.042

  • alpha – 1 x 1 floating number representing the convergence speed parameter alpha. Ex. alpha = 0.05

Returns:

n x 1 ndarray array for the calibration vector needed to interpolate and extrapolate b = [[14], [-21]] rates

For more information see https://www.eiopa.europa.eu/sites/default/files/risk_free_interest_rate/12092019-technical_documentation.pdf

SWExtrapolate(M_Target, M_Obs, b, ufr, alpha)[source]#

Interpolate or/and extrapolate rates for targeted maturities using a Smith-Wilson algorithm.

r = SWExtrapolate(T_Target,T_Obs, b, ufr, alpha) calculates the rates for maturities specified in M_Target using the calibration vector b.

Parameters:

  • M_Target – k x 1 ndarray. Each element represents a bond maturity of interest. Ex. M_Target = [[1], [2], [3], [5]]

  • M_Obs – n x 1 ndarray. Observed bond maturities used for calibrating the calibration vector b. Ex. M_Obs = [[1], [3]]

  • b – n x 1 ndarray calibration vector calculated on observed bonds.

  • ufr – 1 x 1 floating number, representing the ultimate forward rate. Ex. ufr = 0.042

  • alpha – 1 x 1 floating number representing the convergence speed parameter alpha. Ex. alpha = 0.05

Returns:

k x 1 ndarray. Represents the targeted rates for a zero-coupon bond. Each rate belongs to a targeted zero-coupon bond with a maturity from T_Target. Ex. r = [0.0024; 0.0029; 0.0034; 0.0039]

For more information see https://www.eiopa.europa.eu/sites/default/files/risk_free_interest_rate/12092019-technical_documentation.pdf

SWHeart(u, v, alpha)[source]#

Calculate the heart of the Wilson function.

H = SWHeart(u, v, alpha) calculates the matrix H (Heart of the Wilson function) for maturities specified by vectors u and v. The formula is taken from the EIOPA technical specifications paragraph 132.

Parameters:

  • u – n_1 x 1 vector of maturities. Ex. u = [1; 3]

  • v – n_2 x 1 vector of maturities. Ex. v = [1; 2; 3; 5]

  • alpha – 1 x 1 floating number representing the convergence speed parameter alpha. Ex. alpha = 0.05

Returns:

n_1 x n_2 matrix representing the Heart of the Wilson function for selected maturities and parameter alpha. H is calculated as in the paragraph 132 of the EIOPA documentation.

For more information see https://www.eiopa.europa.eu/sites/default/files/risk_free_interest_rate/12092019-technical_documentation.pdf