O'Reilly logo

BOND MATH: The Theory Behind the Formulas by Donald J. Smith

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Inferring the Forward Curve

Suppose that you do not have access to a term structure model or the requisite adjustment to the futures rates. You still can infer the LIBOR forward curve if you observe the fixed rates on plain vanilla interest rate swaps. For example, suppose that you know the current level of 3-month LIBOR is 0.50% and that the fixed rates on 1-year and 2-year swaps are 2.12% and 3.40%. These swaps are for quarterly settlements and 30/360 day-counts. Suppose further that you observe the full range for the intermediate-maturity swaps: The 0.50-year fixed rate is 1.04%, the 0.75-year is 1.58%, the 1.25-year is 2.44%, the 1.50-year is 2.76%, and the 1.75-year is 3.08%.

Okay, it is incredibly unrealistic that you could observe all ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required