Curve Definitions
Introduction
A curve in the Vector Risk service is defined by four key fields labeled “Market, CurveType, Asset, PriceCcy”. This curve key approach has been found to be very descriptive across a wide range of market data. A curve may contain just one rate (eg a spot rate), a term structure of rates (eg a zero curve) or a 2D surface representation (eg Interest Rate volatility surface).
Examples of curve definitions are:
| Curve Key | Description |
| MM.ZERO.SWAP.USD | A zero coupon discount curve for US dollars. |
| FX.PRICE.EUR.USD | An FX spot price for the EURO against the US dollar. |
| EQ.PRICE.BHP.AUD | A stock price for the mining company BHP. |
| EQ.GRID.BHP.AUD | An implied volatility surface for BHP stock options. |
| EQ.DIVDISC.BHP.AUD | A dividend discount curve for BHP. |
| Property | Description |
| Curve Key | The four fields "Market, CurveType, Asset, PriceCcy". |
| Rate Source | Organisations have access to certain rate sources (including their own private source) and can prioritise one rate source over another for a given set of curves. |
| Real World Process | The model used for curve evolution in monte carlo simulations to calculate potential future exposure. |
| Risk Neutral Process | The model used for curve evolution in monte carlo simulations to calculate CVA. |
| Interpolation Model | The model used to interpolate between points on the curve – usually set to linear (which is interpreted as bilinear interpolation for surfaces) but another example is cubic splines. |
| Sector | This field can be populated with GICS codes for equity curves, or any other scheme as required. It is used for classification in stress testing. |
| Liquidity | This field can be left blank or populated with a liquidity value (eg low or high). It is used for classification in equity stress testing. |
| Expiry | The number of days until rates for this curve are considered 'stale'. For example FX spot rates might have an expiry of 1 (meaning they are only valid for pricing where the calculation date matches the rate date). By contrast, a CPI curve might have an expiry of 90 meaning that calculations can continue to use these rates for the next 90 days before they must be replaced by new rates in the system. |
| Modellability | Can take values: FullHistory, PartialHistory, NonModellable. FRTB expected shortfall (ES) uses this value to decide which risk factors to include in the 'recent' simulation, which to include in the stress period simulation and which to exclude from the ES process altogether. |
| Entry Date | The entry date for the curve (allows newer versions of curves to be loaded, even though old calcs may use the original rates. |
CurveTypes
Each curve definition includes the curve type. A number of special abilities are defined in curve types:
| CurveType Property | Description |
| Curve Model | Allowable values are Normal or Surface. “Normal” indicates a one dimensional curve (eg a price, or a term structure of rates. “Surface” indicates a set of surface parameters denoted by term and span. |
| Check Reverse | Whether a curve key can be accessed by reversing the asset and priceccy (true for FX spot and FX vol curves). |
| Invert Reverse | Whether a reversible rate should have its value inverted (true for FX spot but false for FX vol curves). |
| Evolves | If true this curve can be evolved either with a stochastic process, or in a historic simulation. This is set to true for most curves. |
| FwdStyle | Values allowed are: BOND, DIVIDEND, INDEX, PRICE, VOL, ZERO NONE. |