Hope you are doing fine. I am pricing a 1month IRS. For that purpose in order tu build the forward curve i have to use the following. Since USD 1m instruments do not exist, one has to use basis between 3month and 1month

  1. 1 month libor rate (1month deposit rate)
  2. Swap Curve from 2 years using basis to build the far end of the curve.

But what about in middle part? For example BBG uses futures for the 3month forward curve. In order to get the forward rates, the formula will be the following:

Futures Rate = Forward Rates + Convexity Adjusted and Futures Rate = 1 - Futures Quotes

Since one has the basis (3m vs 1m) for the 3m,6m,9m and 1year tenor. Is it correct to add or deduct the basis spread to the 3m forward rate derived from futures to get a 1 month libor forward rate?

Thanks in advance

  • $\begingroup$ Solved the issue $\endgroup$ Jul 21 '19 at 22:53

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