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Government Bond Curve An algorithm is presented for bootstrapping a discount factor curve. The bootstrapping procedure uses an input set of instruments with different maturities (i.e., Canadian government money market securities and bonds) to generate successive points on a discount factor curve. The Canadian zero curves generated will be used to generate particular risk measures, for example DV01’s. Moreover, the zero rate curves are not intended for use in pricing (P&L) applications The Government Bond Bootstrapping interface requires as input a set of financial instruments of the type below, sorted by order of increasing time to maturity To determine discount factors at times intermediate to control points, we apply a particular interpolation technique. There are three available: The CAD Government Bond Bootstrapping proceeds in two phases. The first phase uses short term instruments maturing in the near future; here discount factors are directly inferred from the prices of these instruments, which typically mature in one year or less. Consider, for example, a CAD government money market instrument with Canadian Government Bond yield to maturity (YTM), pricing and accrued interest conventions are unusual and are given in Appendix 1. Note that standard SIA bond yield pricing formulations differ from Canadian Government Bond pricing formulations.
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