You use this function to let the system calculate the yield curve.

When generating the yield curve the system does the following:

1. It uses all the grid points (= reference interest rates) as a framework for the yield curve. It accesses the reference interest rates. The setting you made for the read procedure parameter governs how the system does this. There are three read procedures: read back, read directly and read back directly.

• If you use read back, the system uses the most recently maintained interest rate for every grid point of a yield curve, meaning the system reads back in the interest rate table up to the most recent entry. For this reason, under certain circumstances the validity of the interest rates used can be different at different points in time.
• If you use read directly, the system reads the interest rate valid precisely on the yield curve date for every grid point of the yield curve, meaning there is no reading back in the interest rate table.
• If you use read back directly, the system reads back in the interest rate table until at least one interest rate is maintained. For this date, the system reads the interest rate directly. Consequently, for this procedure the validity of all interest rates used is identical.

2. For the calculation of curves of the yield category par rate, the system requires grid points at least at yearly intervals. If no reference interest rate is defined on these annual grid points, the system interpolates the values. The system interpolates the values stored at yearly intervals up to the last reference interest rate defined in the yield curve.
3. The system makes the following calculations:

• Zero coupon rates and zero bond discounting factors are calculated for the yield category par rate. Calculation of the zero coupon rates takes place in the same way as calculation of the forward rate. The zero bond discounting factor that applies for the discounting from t1 to t0 is ZBDF t1 = 1. The zero coupons are used as base amounts for the creation of payment flows.
• Zero bond discounting factors are calculated for the yield category zero coupon yield. In this case, par rates are not calculated.
• If continuous compounding zero interpolation is active, the system calculates zero coupon rates, par rates and zero bond discounting factors for both yield categories.

4. If you have defined an interest calculation method for the reference interest rate that is different from the interest calculation method of the yield curve, the system converts the actual rates to the interest calculation method of the yield curve.
5. The interest rate is shifted according to the markups or markdowns.