Sequential Bootstrapping of OIS Discount and LIBOR Forward Curves

Summary

The document explains a two-stage approach to building an OIS discount curve and a separate LIBOR projection curve. The question concerns whether the OIS curve can be estimated when LIBOR-OIS basis swap quotes are unavailable beyond the maturities covered by federal funds futures.

The answer proposes bootstrapping the OIS curve independently first to obtain discount factors, then using those factors when bootstrapping the LIBOR curve. In this setup, OIS discount factors serve for discounting, while LIBOR rates are used for forward projections. The response is brief: it does not explain how to construct the OIS curve where relevant market quotes are absent, nor does it discuss instruments, conventions, or calibration checks. It therefore provides the sequencing principle, but not a complete procedure for resolving the stated data gap.

Key ideas

• Bootstrap the OIS discount curve independently before constructing the LIBOR curve.
• Use the resulting OIS discount factors when bootstrapping LIBOR forward rates.
• LIBOR rates are used for projections, while OIS factors provide discounting.
• The answer does not specify how to obtain OIS inputs beyond the available quote maturities.

Tags

# How to do simultaneous dual curve bootstrapping?


# How to do simultaneous dual curve bootstrapping?












I wish to understand how dual curve bootstrapping is done?

Lets say we want to bootstrap FF OIS curve and Libor 3 month fwd curve simultaneously. Lets also assume we don't LIBOR-OIS basis swap rates to calculate ois discount curve (post 2 years in time: Till 2 years one can use the FF Futures). Specifically I want to know can we bootstrap the OIS discounting curve in such a case. Someone please explain.

## Answer by alexprice (score 4)

https://quant.stackexchange.com/a/54704

It's done in 2 steps:

1) First you bootstrap OIS curve independently from Libor curve, get OIS discount factors

2) Then use these to bootstrap Libor curve (using OIS discount factors instead of Libor ones,Libor used for projections only)

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.