We developed a Yield Curve Pricing Tool for both the Bank of Georgia and Central Bank of Egypt, funded by the EBRD.
The Yield Curve is a relationship between short and long term interest rates depicted as a continuous line. Information revealed by the curve is of vital importance for policy makers and private investors. It provides a broad scope of information, besides being the most up-to-date indicator of the local bond market.
We faced several challenges in our goal to build a full yield curve in these countries. To overcome sparse yield data, we used a combination of numeric techniques and proxies for unobservables.
An additional challenge was to take into account differences in structures of emerging economies, and in their bond markets. To construct a continuous curve, we needed to propose a method, which reflects the special features of a given country and exploit information at hand in the most effective way.
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