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jeff00
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Joined: April 19th, 2009, 2:44 am

Bootstrapping OIS, Fed Funds Curve

October 31st, 2011, 11:59 am

Hello to all Willmotters.I'm currently trying to build a discounting curve using OIS and FF/Libor3m spreads.I can understand bootstrapping methods of OIS curve(to 1yr or 2yr) because it's quite a simple methodology, But It's very hard to get DF from FF/Libor 3m swap.Since FF/libor 3m swap pays arithmetic avg of FFE (H.15) +spread, So I cannot find out how to derive DF from those rates.Does anybody know how to bootstrap the DF from Fed Funds swap in longer term(from 1yr)? (how to deal with Arithmetic avg.)
 
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manolom
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Bootstrapping OIS, Fed Funds Curve

October 31st, 2011, 11:28 pm

Assume the flat (i.e., no spread), floating leg is worth par.
 
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jeff00
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Joined: April 19th, 2009, 2:44 am

Bootstrapping OIS, Fed Funds Curve

November 1st, 2011, 1:06 am

Thanks for your advice. Your comment is a great comfort to me But Is that Assumption OK? Cos I'm worring about the error caused by difference between arithmetic & geometric avg.
 
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egumon
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Joined: July 22nd, 2008, 6:20 pm

Bootstrapping OIS, Fed Funds Curve

November 14th, 2012, 3:57 pm

QuoteOriginally posted by: jeff00Thanks for your advice. Your comment is a great comfort to me But Is that Assumption OK? Cos I'm worring about the error caused by difference between arithmetic & geometric avg.a year late, but for anyone coming upon this topic via google, there is a paper that describes convexity adjustments to account for the difference between arithmetic and geometric:http://papers.ssrn.com/sol3/papers.cfm? ... id=1981668