3
$\begingroup$

I'm new to curve construction for swaps pricing concept and I am having hard time to understand dual curve construction and what difference it from single curve ? how do we construct it ? can someone please care to explain this to me ? thank you

$\endgroup$
  • 1
    $\begingroup$ Imagine a swap on 3-mo Libor. First of all you need a "forecasting curve" which gives today's forward rates for 3-mo Libor. Then you need to discount these forecasted payments to the present, for this you need a "discounting curve" which in modern practice is a curve of OIS rates. (In the past people used the same curve for both purposes, which was not conceptually correct. 3-mo Libor, 6-mo Libor, 1 yr Libor, OIS, are different interest rates, although they may be close to each other. When you discount two "projects" you must use the same rate, otherwise the PVs are not comparable.). $\endgroup$ – noob2 Apr 9 at 9:30

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.