s curves

Interest rate sensitive products are epxosed to market rates by different curves

Swap curve built out of fixed coupon rates of market quoted interest rate swaps across different maturities in time.
Consists of a fixed leg and a floating leg
Swpa curves are constructed in segments from the market prices of various fixed income instruments
Short end of swap curve (< 3 months) is calibrated on unsecurted deposit rates
Middle area of the curve (3months - 2 years) isdervied from a combination of forward rate agreement congrats and interest rate futures
Long end of the curve is constructed from observed quotes of swap rates (out to 10 years or more)
Single currency basis spread curves are constructed from market quotes for basis swaps
- Basis swap is a floating-floating interest rate swap under the floating rate payments are referenced to different bases
Used for
- Pricing fixed income instruments such as corporate bonds, mortgage securities, and other securitized products
- Price cash flows, swaps, FX forwards, and other derivatives