Actuarial Outpost Bootstrapping to get LIBOR forward rates
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#1
03-08-2018, 12:01 PM
 Freebird Member SOA AAA Join Date: Dec 2001 Location: Topeka, Kansas College: Graduated from Ohio State too many years ago to remember Favorite beer: Newcastle Posts: 824
Bootstrapping to get LIBOR forward rates

It's been a really long time since I have dealt with the bootstrapping technique for LIBOR forward rates. A Google search didn't get me anything I could use off the rack, so I thought I would try here.

I have a set of LIBOR spot rates in the table below. I think the first one is a 2-day rate, with the rest going up to 12 months. These are rates as of 2/28/2018. I was hoping someone had a spreadsheet to share, or could point me somewhere. I would like a formula to calculate the forward rates from these spot rates.

Anyone?

LIBOR Rates (A/360)
O/N 1.390%
LIB01m 1.670%
LIB02m 1.814%
LIB03m 2.017%
LIB06m 2.224%
LIB12m 2.502%
#2
03-08-2018, 05:26 PM
 Numbers Nerd Member SOA AAA Join Date: Sep 2001 Location: Midwest College: University of Wisconsin Favorite beer: Ale, Lager, you name it Posts: 1,633

Year Spot Forward
0 0.00% 0.50%
0.25 0.40% 0.59%
0.5 0.43% 0.70%
0.75 0.47% 0.82%
1 0.50% 0.94%

This is something from a spreadsheet we use, with actual rates from 2/28. Basically you get the tabular rates for specific durations, interpolate for the desired duration, raise to the power to get the zero coupon rate, then back out the forward rate, using a formula something like this:

Forward Rate=((1+Spot Rate)^(Duration+1)/(1+Spot Rate)^Duration))-1

Here are the original source rates from Bloomberg.
GBP
02/28/2018
3 months 0.4009%
6 months 0.4321%
12 months 0.4989%
24 months 0.7917%
#3
03-08-2018, 05:55 PM
 Freebird Member SOA AAA Join Date: Dec 2001 Location: Topeka, Kansas College: Graduated from Ohio State too many years ago to remember Favorite beer: Newcastle Posts: 824

Thanks, Mr. Nerd!

I will give your approach a try and let you know if i have any questions.

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