I was wondering how to calculate the forward rates based on OIS discounting for the half year terms. I know how to do this for the full year terms -> just making sure that the two legs are equal to each other. The problem is that I don't have fixed payments on the half year terms. For example when one wants to calculate the 1,5 OIS discounted forward rate you only have 1 fixed payment versus 3 floating payments. How to deal with this? One method which can be used is just calculating the full year rates and then interpolate between these rates, but I wonder if there is a method which can calculate these rates without using interpolation?

Next to that what does a 1,5 swap rate exactly mean, is this just an interpolated rate because you will have the same problem here when there isn't a payment on the half years.

  • $\begingroup$ What do you mean "you only have 1 fixed payment versus 3 floating payments". I have never heard about this new kind of swap. $\endgroup$ – noob2 Jan 14 '16 at 11:32
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    $\begingroup$ I don't think this kind of swap is really common but it's more a fake instrument to calculate the forward rates based on OIS discounting. $\endgroup$ – Oamriotn Jan 14 '16 at 13:13

Which currency are you looking at ? Say that your 1y swap would have yearly fixed payments vs 3M floating payments. Your 1.5y swap would probably have:

  • a fixed payment 6m after effective date and another fixed payment 18m after effective date
  • regular quarterly floating payments

Your curve was built with 1y and 2y swaps, nothing in the middle ? Then yes, your interpolation choice would matter a lot. I would look at 3m forward rates and make sure that they optically make sense.


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