The Logic and Practice of Yield Curve Construction

We present a coherent account of the construction of yield curves, both covering the fundamental theory and practical issues that are relevant to practitioners. We review and extend the formulas for the construction of yield curves using the multi-curve methodology that has gained importance since the financial crisis. We present new formulas that take into account subtleties found in the instruments underlying the OIS curves, and present the concrete steps implementing those formulas in the practical construction of the same curves. We also give a detailed discussion of the interpolation methods used in the construction process and analyze some of the conceptual issues associated with their use