Building AUD and CAD Zero Curves After LIBOR Cessation

Summary

This note addresses constructing Australian dollar and Canadian dollar zero curves after the relevant LIBOR settings ceased publication. It identifies BBSW for AUD and CDOR for CAD as replacement reference rates and explains the basic principle for sourcing curve instruments: use rates that are sufficiently liquid and reflect market conditions. The underlying mathematics for deriving a zero curve from swap rates remains standard; the change is the chosen reference-rate input.

The response offers no step-by-step bootstrapping procedure, instrument schedule, or worked calculation, and instead points to related discussions for further detail. It also cautions that replacing a benchmark does not by itself guarantee that submitted rates are free from manipulation. The document therefore provides a high-level benchmark-selection principle and a caveat about governance, rather than a complete practical recipe for curve construction.

Key ideas

• Curve construction should use sufficiently liquid instruments that reflect market conditions.
• The proposed reference rates are BBSW for Australian dollar curves and CDOR for Canadian dollar curves.
• The standard mathematics for deriving zero curves from swap rates is unchanged by a benchmark substitution.
• A new reference rate does not automatically eliminate the risk of rate manipulation.
• The note does not provide a detailed bootstrapping method or worked curve example.

Tags

# Zero Curve Calculation for AUD, CAD (post LIBOR scandal)


# Zero Curve Calculation for AUD, CAD (post LIBOR scandal)












In the end of May 2013 British Bankers Association (BBA) stopped publishing LIBOR rates for Australian and Canadian dollars in a light of recent scandals.

LIBOR rates were essential for creating zero curves for these currencies. BBA now recommends to use Bank Bill Swap Reference Rate (BBSW) for AUD and Canadian Dealer Offered Rate (CDOR) for CAD.

How would you convert these into zero curves?

## Answer by Matt Wolf (score 2, accepted)

https://quant.stackexchange.com/a/8343

I think the following two questions and related answers should help in answering the question:

Why use swap-rates in a yield curve?

and

Is there an Australian Interbank Rate?

Essentially to derive funding curves you gotta use what is left with the constraint that the source instrument has to be liquid enough and closely enough reflect true market conditions. The math behind sourcing such swap rates to generate a zero curve is standard, the only thing that changed is the reference rates used.

To be honest, I believe those submitted rates are not coming with any more guarantees to be free of rate rigging than any prior libor submissions. The vendor name changed, the topic is still fresh on people's minds and that is about it.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.