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5

If $L$ and $Z$ curves are identical, you are in a single curve frame work. A swap can be seen as a long position in a fixed rate bond and a short position in a floating rate bond. (I'll use yearly payments 30/360 in order to be able to ignore the $\tau$ =1 and simplify the notation) $$DF_1 \times C^{fixed} + ... + DF_n \times C^{fixed} + DF_n - (DF_1 \...


4

Forward rates are determined from current spot rates bootstrapped from traded instruments. The reason is that if the forwards were different from the ones inferred from the spot rates, there would be arbitrage. For example, you can replicate a forward 6 month rate in 6 months with a long position in the one years rate and a short position in the 6 month ...


2

One possible reasoning is to group the underlying risk into similar categories. You could have 3m, 2y, 5y, 10y, 30y,... No written rule here. Different banks or traders may like to group the tenors in different ways. For example, the 4y and 5y swap will most likely always move very closely so you can group them together and look at your risk by buckets. ...


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