I have a pay fixed / receive floating interest-rate-swap on the AUD BBSY that I'd like to price for the purposes of accounting.
I understand the general process to be as follows (assuming single-curve theory):
- Use the swap rates to bootstrap zero/spot rates.
- Use the zero/spot rates to construct a yield curve (e.g.using cubic splines).
- Use the yield curve to discount the future cash flows of the swap.
- Adjust for the credit risk of the counterparties.
Regarding the step 1 bootstrapping: the rates quoted in the market are 1, 2, 3, 4, 5, or 6 month "AFMA Bank Bill Swap Rates" and 1, 2, 3, 4, 5, 7, 10, and 15 year "AFMA Interest Rate Swaps". Two questions:
1) How can I tell what the coupon structure is for either reported rate (Bank Bill Swap Rates or Interest Swap Rates) so that I can construct the bootstrapping formula?
2) Do I need to do anything when I switch from the short-term to long-term rates other than recognize that in my coupon model in the bootstrapping?