I'm a student learning how to build a swap curve, I've deposit 6m rate = 5%, fra 6-12m rate = 5.8% and 12m-18m rate= 6% and swap 2y =7% and 3y swap rate = 7.5%. I get the correct discount factors for the deposit and fras but for swaps I get wrong values..

DF6m =0.97547758 DF6-12m =0.94709626 DF12-18m =0.91921345 DF 2y swap =?? DF 3y swap =??

For this example starting date is 10/09/2010 using day conv act/360. Can you help me get the right discount factors for 2y and 3y swaps. or direct me to book with examples of curve buildings ? thank you


1 Answer 1


Try Howard Corb's book ["Interest Rate Swaps and Other Derivatives", Columbia Business School Publishing, 2012].

And your 2y rate looks odd which should be intuitively obvious - simple arithmetic mean of your 6m, 6mf6m and 12mf6m rates is 5.6%. What does that suggest about your 18mf6m rate for the 2y rate to be 7%?!


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