Hello,Can someone explain what the "Stripped Curve" screen is in Bloomberg when looking at SWDF curve #23 (USD 30-360 S/A)? I thought LIBOR rates were already zero rates, why do they need to be stripped?Many Thanks.

But further out this curve is built out of swap quotes, isn't it?

Yes, the longer end of this curve is built out of swap quotes. Are you saying that, since swap rates are par rates, they need to be stripped? And that stripping the long end of the curve will result in the stripped rates for the short end of the curve being different to the quoted libor rates?

stripping the curve removes the "coupon" effect and gives you zero coupon rates. LIBOR is not zero coupon.

I see. Thanks daveangel. I guess a better question is, how is LIBOR not zero coupon? For instance, doesn't 3-month LIBOR describe the cost of funds for 3-month maturities? Where are the coupon payments occurring?

QuoteOriginally posted by: teddydavisYes, the longer end of this curve is built out of swap quotes. Are you saying that, since swap rates are par rates, they need to be stripped? And that stripping the long end of the curve will result in the stripped rates for the short end of the curve being different to the quoted libor rates?Swap rate inputs are par swap rates, not zero-coupon rates.

quite right. I was too fast with a response - LIBOR is zero coupon but swaps are not. I was referring to the latter.

I see. Thanks much. This explains why, in the "Stripped Curve" Bloomberg data I'm looking at, the "market rate" and the "spot rate" are equal for the near maturities and different for longer maturities. This has been very helpful, thanks for your time.I'm also trying to replicate a Bloomberg BCSW swap valuation. The swap is fixed for floating (1-month libor). It was originated in 2007 and I'm marking it to market as of the end of April, 2009. It expires in 2010. I can replicate the fixed payments that Bloomberg calculates, but I can't figure out where the floating payments are coming from. I know that they're based on some sort of forward LIBOR rates but I'm not sure which ones precisely.Any thoughts?

QuoteOriginally posted by: teddydavisI see. Thanks much. This explains why, in the "Stripped Curve" Bloomberg data I'm looking at, the "market rate" and the "spot rate" are equal for the near maturities and different for longer maturities. This has been very helpful, thanks for your time.I'm also trying to replicate a Bloomberg BCSW swap valuation. The swap is fixed for floating (1-month libor). It was originated in 2007 and I'm marking it to market as of the end of April, 2009. It expires in 2010. I can replicate the fixed payments that Bloomberg calculates, but I can't figure out where the floating payments are coming from. I know that they're based on some sort of forward LIBOR rates but I'm not sure which ones precisely.Any thoughts?The forecast LIBOR fixings are computed from the LIBOR curve. You can see the projected LIBOR fixings in the 'Cashflow' tab in BBG swap valuation screen. Then you can compare them to what you're using. Note that, since this is a swap vs 1m LIBOR, the pesky question of 3s1s basis rears its ugly head.

Ah. I think I have a Bloomberg subscription which doesn't allow access to the BBG screen. The 'Cashflows' tab which I have access to (through the BCSW screen) shows the "Reset Rate" if you choose to look at historical cash flows, but I can't see the projected LIBOR rates that they use to calculate the floating payments. I can back them out using the notional principal, payment dates, and the relevant day count convention, but then when I compare them to forward rates such as those on the FWCV screen, they don't match. Could this be because of the basis issue you referred to below?

QuoteOriginally posted by: teddydavisAh. I think I have a Bloomberg subscription which doesn't allow access to the BBG screen. The 'Cashflows' tab which I have access to (through the BCSW screen) shows the "Reset Rate" if you choose to look at historical cash flows, but I can't see the projected LIBOR rates that they use to calculate the floating payments. I can back them out using the notional principal, payment dates, and the relevant day count convention, but then when I compare them to forward rates such as those on the FWCV screen, they don't match. Could this be because of the basis issue you referred to below?Hmmm, I see both the historical and the projected fixings in my screen.The mismatch could be due to a) the 3s1s basis; b) the fact that the fixings are fwd FRA rates, whereas you're seeing something else in the FWCV screen. It's hard for me to tell, as I am not entirely sure what you're looking at.

QuoteOriginally posted by: teddydavisI see. Thanks much. This explains why, in the "Stripped Curve" Bloomberg data I'm looking at, the "market rate" and the "spot rate" are equal for the near maturities and different for longer maturities. This has been very helpful, thanks for your time.I'm also trying to replicate a Bloomberg BCSW swap valuation. The swap is fixed for floating (1-month libor). It was originated in 2007 and I'm marking it to market as of the end of April, 2009. It expires in 2010. I can replicate the fixed payments that Bloomberg calculates, but I can't figure out where the floating payments are coming from. I know that they're based on some sort of forward LIBOR rates but I'm not sure which ones precisely.Any thoughts?the value of the floating leg is going to be N*(1 - df(T)) + N * L * t* df(1) where df(T) is the discount factor to maturity, N is the notional, L is the last LIBOR setting, t the accrual period for the floating payment, df(1) is the discount factor to the next (known) payment.