Dual-Curve Bootstrapping for Discounting and LIBOR Projection

Summary

Dual-curve bootstrapping builds interest-rate curves for distinct purposes: one curve discounts cash flows, while another projects rates such as LIBOR. The response describes a multi-curve framework in which discounting instruments, such as fed funds, and projection instruments, such as LIBOR or swaps, are observed and solved together rather than constructing each curve independently. This distinction matters when the market uses different rates for discounting and for estimating future floating payments.

The question seeks a three-month LIBOR forward curve and asks whether Excel is suitable. The response does not provide a worked numerical example or detailed construction steps. It points readers to introductory papers and a specialized book on multiple-curve calibration, and cautions that implementing the process cleanly in Excel is difficult; spreadsheet users commonly rely on a compiled add-in. The material is therefore a concise conceptual orientation, not a complete recipe for calibration or a specification of the required instruments and conventions.

Key ideas

• A multi-curve framework separates discounting from forward-rate projection.
• Discounting and projection curves are calibrated together from their respective market instruments.
• A LIBOR forward curve is a projection curve, while fed-funds instruments can inform discounting.
• The response offers references rather than a worked bootstrap example.
• A clean spreadsheet implementation may be difficult and commonly depends on an add-in.

Tags

# What is Dual Curve Bootstrapping? And how to do it, with an example?


# What is Dual Curve Bootstrapping? And how to do it, with an example?












I am starting to explore this area. My ultimate aim is to build a 3 month LIBOR forward curve.

- I wish to know what exactly 'Dual Curve Bootstrapping' is (If someone could explain it in clear words).

- What are the 2 curves I will be using for coming up with 3Month Libor forward curve

- Can this process be done in excel?

- Can someone elaborate on it using an example to construct 3month LIBOR curve?

## Answer by Dimitri Vulis (score 8, accepted)

https://quant.stackexchange.com/a/54658

A multi-curve means that you observe the discounting instruments (such as fed funds) and projection (libor, swap curve) and solve for all of them simultaneously; as opposed to bootstrapping separately a projection curve and a discounting curve.

A simple paper with examples is Numerix Model Calibration: The Multiple Curve Approach.

A more detailed intro is Ametrano, Bianchetti. Everything You Always Wanted to Know About Multiple Interest Rate Curve Bootstrapping, but Were Afraid to Ask (2013).

A whole book on the subject by the OpenGamma's Head of Quantitative Research Marc Henrard. Interest Rate Modelling in the Multi-Curve Framework: Foundations, Evolution and Implementation. Palgrave Macmillan (2014).

It would be very hard to do it cleanly in Excel. Usually Excel users call an addin written in C++ or some such.

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.