Shift
Key Shift in ImpYC Shifted refers to the time interval by which the curve of discount factors implied by the input yield curve in Spot Curve is shifted.
Expects an object of type Period.
The direction of the shift depends on the sign of that interval and the entry Date Spec
When Date Spec = By Period Plus, a positive amount indicates a shift to the right and a negative amount indicates a shift to the left.
The shift direction is reversed when Date Spec = By Period Minus
First example of a practical application:
Setting a (negative) shift of 10 calendar days, i.e. entering -10D, creates a curve, of which all spot discount factors are identical with the original curve's corresponding forward discount factors that start at the date T = 10 days in the future.
Effectively, the negative shifting operation transforms the original forward-started (by 10 days) discount factors into spot discount factors.
It turns out, this is the right forecasting curve to use in a pricing context where a) the valuation date is set to 10 days from now and b) is desired that the curve observed at T is very close to the forward (as of T) curve observed today.
The valuation date can be changed for example by calling the Price function with the input parameter As Of set to the future date T = Today + 10 Days.
Note, the above condition b) states very close rather than identical
The reason is that even though the shifted curve is identical to the forward-started curve, when one changes the valuation date to T, the newly generated spot curve may slightly differ from the original curve due to changes of the newly generated cash flow dates of the bootstrapping instruments.
Second example of a practical application:
Setting a (positive) shift of 10 calendar days, i.e. entering 10D, creates a curve, of which all forward discount factors that start at the date T = 10 days in the future are identical with the original curve's corresponding spot discount factors.
The discount factors of the new curve for maturities less than T are kept equal to those of the original curve.
Effectively, the positive shifting operation transforms the original spot discount factors into forward-started (by 10 days) discount factors.
This curve can be used to calculate the rolled NPV as of a future date T of any instrument without the need to change the valuation date to T, provided the following adjustments are also made:
Adjustment 1: All discount factors for maturities less than T are set to 0 with the help of the entry Last Zero DF Date
Adjustment 2: The entry DF Multiplier is set to the inverse of the discounting curve's discount factor for maturity T.
The last adjustment is needed in order for the calculated NPV to represent the instrument's price as of T, rather than today.