Hello,I have taken a look at the following presentation by Ferdinando Ametrano:"Yield Curves for forward Euribor estimation and CSA discounting "Available at:http://www.statpro.com/quantlib_forum/q ... .aspxThere are some points I quite do not understand. In particular:-the fact (explained in page 58) that it is not advisable to usedeposits to construct the Euribor 6M curve in the short run-the fact (explained in page 60) that it is advisable insteadto construct synthetic deposits to construct the Euribor 6M curvein the short runI do not understand well the way such synthetic deposits can be constructed.I would really appreciate if you could give me some advice concerning these issues.Thank you,

Quotethe fact (explained in page 58) that it is not advisable to usedeposits to construct the Euribor 6M curve in the short runThese days my favorite way to look at Euribor/Libor is "the underlying of collateralized derivatives" such as swaps and FRADeposits instead are un-collateralized transactions, so they are something completely differentQuotethe fact (explained in page 60) that it is advisable insteadto construct synthetic deposits to construct the Euribor 6M curvein the short runIn order to bootstrap the Euribor 6M curve you can use 0x6, 6x12, 12x18, 18x24, etc. This is quick and easy.But if you want to include the 1x7 FRA (resulting in the 7M pillar) you need the curve value at 1M and this data is not directly available in the Euribor 6M market. You have to estimate the 1M curve point in some "synthetic" wayQuoteI do not understand well the way such synthetic deposits can be constructed.I would really appreciate if you could give me some advice concerning these issues.The raw idea is to borrow the curve shape between 0 and 6M from another curve (EONIA being the perfect candidate) and then apply a parallel shift to match the 0x6 FRA. Then you could/should also impose some slope taking into account the slope of the 6M/Eonia basis term structurehope it helpsciao -- Ferdinando

Hello Ferdinando,Thanks so much for your reply.I am still confused concerning some issues detailed in your presentation.I wonder if I could ask you please some more questions:1. I wonder what exactly does it mean to select "homogeneous instruments"and why is that ON,TN,SN, SW, 1M, 2M, 3M deposits are not homogeneous2. I wonder why is an Euribor indexed product not collateralized(are OIS swaps, FRAs, Futures collateralized and why?) (are Deposits Euribor indexed products and why?)3. Why do you recommend employing synthetic deposits when ther are overlapping instruments?For instance, in page 64 you recommend employing synthetic deposits as 0x3FRA overlaps with futures4. In page 68, as there is no 0x1 FRA you recommend using "the fixing", but I do not understand whatdo you mean by "the fixing"Thanks so much,

Hello,Does anybody know what the distiction between homogeneous vs. non homogeneous contracts may be?And what does it mean that FRA, Swaps and Futures are collateralized derivatives but Deposits do not?Thank you,

QuoteOriginally posted by: ametranoIn order to bootstrap the Euribor 6M curve you can use 0x6, 6x12, 12x18, 18x24, etc. This is quick and easy.But if you want to include the 1x7 FRA (resulting in the 7M pillar) you need the curve value at 1M and this data is not directly available in the Euribor 6M market. You have to estimate the 1M curve point in some "synthetic" wayThe raw idea is to borrow the curve shape between 0 and 6M from another curve (EONIA being the perfect candidate) and then apply a parallel shift to match the 0x6 FRA. Then you could/should also impose some slope taking into account the slope of the 6M/Eonia basis term structureciao -- FerdinandoHello,Concerning the reply I quite do not understand, if I depart from Eonia and apply a parallel shift, should I take this shift from the basis curve or should I construct the shift so that I value the 0x6 FRA? How could Iimpose some slope taking into account the slope of the 6M/Eonia basis term structure?Thank you,

QuoteOriginally posted by: miscelania[/iHello,Concerning the reply I quite do not understand, if I depart from Eonia and apply a parallel shift, should I take this shift from the basis curve or should I construct the shift so that I value the 0x6 FRA? How could Iimpose some slope taking into account the slope of the 6M/Eonia basis term structure?Thank you,Are you going to make good on your promise to deliver the actual data you are using to build curves? It would help us help you better. Show consideration to others and you will get some in return.

Hello,I wonder if anybody knows whether Euribor is used in the construction of the short term of the curve.May there be problems of doing so?Please, if anybody could give me some insights I would be grateful.Thank you,

What re you referring to as "Euribor"?

QuoteOriginally posted by: MartinghoulWhat re you referring to as "Euribor"?Hello,I refer to as Euribor:the reference rate defined as the "rate at which Euro interbank Deposits are being offered within the EMU zone by one prime bankto another at 11:00 Brussels time". This rate is constructed as a trimmed average of the rates submitted by a panel of banks.The Euribor rates, available for different maturities, reflect the average cost of funding of banks in the interbank market.In the article by Ametrano:"Yield Curves for forward Euribor estimation and CSA discounting "Available at:http://www.statpro.com/quantlib_forum/q ... ons.aspxHe states that it's not advisable to use Deposits in the short run curve construction, given that Deposits are not collateralizedinstruments. FRA, Futures, Swaps (which are employed in the medium to long run curve construction) are collateralized.Instead of using Deposits he proposes to employ Synthetic Deposits constructed from collateralized instruments.But I wondered if Euribor quotes are also ruled out in the construction of the short term of the curve.Thanks

You cannot use the Euribor fixings for curve construction.

QuoteOriginally posted by: MartinghoulYou cannot use the Euribor fixings for curve construction.Why?

QuoteOriginally posted by: miscelaniaQuoteOriginally posted by: MartinghoulYou cannot use the Euribor fixings for curve construction.Why?Because a) they're fixings; b) their "term basis" is inconsistent. It's not due to them being uncollateralized, IMHO.

QuoteOriginally posted by: MartinghoulQuoteOriginally posted by: miscelaniaQuoteOriginally posted by: MartinghoulYou cannot use the Euribor fixings for curve construction.Why?Because a) they're fixings; b) their "term basis" is inconsistent. It's not due to them being uncollateralized, IMHO.Hello,I do not understand what do you mean by "their term basis is inconsistent".Aren't FRAs, Swaps quotes also "fixings"? What do you mean by that?Thank you

No, swaps and FRAs are not fixings, they're quotes.By "inconsistent term basis" I mean that LIBOR fixings are based on unsecured rates at which money is (theoretically) lent for different terms, e.g. 1m, 3m, 6m, etc. That means that you can't use several of them to construct a yield curve with a specific term basis. For instance, other issues aside, you can't use the 3M and 6M EURIBOR instruments to construct a 3M EURIBOR curve.

QuoteOriginally posted by: MartinghoulNo, swaps and FRAs are not fixings, they're quotes.By "inconsistent term basis" I mean that LIBOR fixings are based on unsecured rates at which money is (theoretically) lent for different terms, e.g. 1m, 3m, 6m, etc. That means that you can't use several of them to construct a yield curve with a specific term basis. For instance, other issues aside, you can't use the 3M and 6M EURIBOR instruments to construct a 3M EURIBOR curve.Thank you for your clarification.Do deposits have the same problems in curve construction? Would you recommend synthetic deposits as Ametrano does?Thank you