Bootstrapping techniques Sample Clauses

Bootstrapping techniques. The standard (and oldest) method for building a LIBOR forward curve uses boot- strapping, and consists in the following. Suppose that we know the discount factors P (0, Tj) , j = 1, . . . , N, (18) for all “standard” maturities Tj spaced (say) every 3 months. It is important to choose these maturities so that they include the coupon dates of the benchmark swaps. Then, P (0, Tj) , P (Tj−1, Tj) = P (0, T j−1) and so we we can calculate the forward rates for all standard maturities: F (T , T ) = 1 1 − 1 . j−1 j δj P (Tj−1, Tj) That does not really solve the problem yet, because we are now faced with the issue of computing the forward rates for non-standard settlements T (say, a 3 month forward settling 4 months from now). We compute these forwards by means of interpolation. There is no standard for interpolation and various schemes have been proposed. Here is a partial list:
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Related to Bootstrapping techniques

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