I was reading through a paper that attempted to present a theoretical explanation for the divergence in value of different LIBOR tenors (and thus for the use of different curves for different tenors). The author's framework explained differences in terms of FRA and basis swap spreads (in Conjecture 6, p.19), and I was wondering:
- have any comprehensive theoretical frameworks been developed that are used in practice?
- are there any other reasons (beyond empirical fitting) for using multiple curves (inspired by the answers to this question)?
Finally, in the framework of multiple curves, is it then appropriate to say that 1Y LIBOR is above 1Y swaps because the swaps use OIS discounting (and are collateralized)? If so, does this extend to explaining any of the difference in long term rates (10Y swaps below 10Y treasuries), or are these dynamics better explained by regulatory environments and repo markets?