There are some discussions (e.g. Difference between OIS Rate and Fed Funds Rate) on usage of
OIS rate to build the
Libor term structure, but I still failed to grasp the reason behind it.
As far as I know, an
OIS rate is the
Interest rate swap's rate for which the floating leg's payout is based on the
Overnight lending rate among banks.
Also, typically, that floating leg's payment is based on
Geometric average of daily Overnight rates within respective leg's tenor. For example, if for a
Swap having frequency of floating leg as 3months, then the payout will be based on the
Geometric average of daily Overnight rates among banks for that 3 months.
So, my question is using such information how can I exactly calculate the
Libor rate for term, say,
10 years etc?
Any insight on this subject will be highly appreciated.
Thanks for your time.