How Overnight Coupons Apply Fixings Across Holidays and Lookbacks

Summary

The document clarifies the division of responsibility between an overnight index and a coupon when modeling overnight rates. The index supplies a fixing for a date when one is available; the coupon handles accruing that rate across the relevant period. For example, a Friday fixing can accrue over the weekend through Monday. The answer notes that coupon periods beginning or ending on holidays require special handling in the described QuantLib case.

It also distinguishes settlement-day conventions from lookback conventions. A fixing that applies to a forward rate period after the fixing date is already supported, while using an earlier fixing date for a later accrual period is a separate lookback feature. The response describes these as library capabilities or pending changes expected in a specified release, so those version-specific statements may not reflect current software. The discussion concerns implementation of an overnight curve and coupon accrual, not a trading strategy or empirical performance.

Key ideas

• An overnight index provides dated fixings, while the coupon applies and accrues them over its accrual period.
• A Friday fixing may accrue across the weekend until Monday.
• Coupon handling may need special logic when an accrual period starts or ends on a holiday.
• Settlement-day timing and lookback days refer to different fixing conventions.
• The stated software support and release expectations are version-specific.

Tags

# Type of rates required for ql.OvernightIndex


# Type of rates required for ql.OvernightIndex












I'm trying to bootstrap the new F-TIIE curve for mexico. It is an overnight curve which fixings are 1 day forward rates published daily by the central bank of Mexico. On holidays, the last fixing is taken for past dates. It has a settlement day of 1. Does the ql.OvernightIndex object from QuantLib have this kind of behaviour? Thanks!

## Answer by Luigi Ballabio (score 0)

https://quant.stackexchange.com/a/79685

That's not the job of `ql.OvernightIndex` in the library, it's the job of the coupon. The index only tells you the fixing for a given date, if available.

The coupon does the work of accruing the fixing for Friday for the three days until Monday; it currently needs some changes to manage the case in which, like for Mexico, the coupon might start or end on a holiday. It will probably be fixed in release 1.35.

Finally, if by "settlement days" you mean that Wednesday's fixing correspond to the forward rate between Thursday and Friday, that's already implemented. Instead, if by "settlement days" you mean lookback days (i.e., on Wednesday you use Tuesday's fixing), this is proposed in https://github.com/lballabio/QuantLib/pull/1985 and will also be part of release 1.35.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.