Forc Crv Index
Key Forc Crv Index in Yld Crv Pick Model refers to a generally optional 1D-array of objects of type Interest Rate that identify the rate types on which the issuers in Forc Crv Issuer apply.
This entry becomes mandatory if the Forc Crv Issuer contains two or more items.
At most one empty element is allowed with the meaning that the corresponding issuer applies to all rate types not present in the remaining elements.
If left unspecified, the single issuer in Forc Crv Issuer applies to all rate types.
For example, consider the case of pricing a tenor basis swap where 3-month Libor is exchanged against 6-month Libor, as described at Forc Crv Issuer
Assume, the two issuers IssuerA and IssuerB have been supplied in Forc Crv Issuer
Then this entry must contain exactly two elements that must be objects of type Interest Rate
Assume both these objects are of type Ibor Rate and the first matches the 3-month Libor referenced by the swap, while the second matches the 6-month Libor.
This match pattern establishes the correspondence between Libor rates and issuers, as follows:
The first issuer in Forc Crv Issuer should be paired with the 3-month Libor and the second issuer with the 6-month Libor.
If the second element were a 9-month Libor, the second issuer in Forc Crv Issuer would not be paired with the 6-month Libor, with the consequence being that the 6-month Libor forwards would be forecast using the discounting curve.
In the case of swaps involving overnight rates, such as OIS, an element here can be of either OI Term Rate or Overnight Rate type.
The second case is allowed for convenience so that one can only specify here the Overnight Rate object and not the OI Term Rate object, in order to match cash flows, of which the index is of type OI Term Rate
Note that by using objects of type Overnight Rate, one ignores the Build Rule and Rate Cutoff that are part of the OI Term Rate type.