Arithmetic averages of Fed Funds (FF) rates are paid on the FF leg of a FF-LIBOR basis swap, while the FF rates are … paid with daily compounding in an Overnight Index Swap. We consider here how to value the arithmetic average of FF rates … calibration instruments for traders to construct the US dollar swap yield curve. We also show how it is constructed in practice …

This paper examines the evolution of the U.S. interest swap market. The authors review the theory and past empirical … studies on U.S. swap spreads, and estimate an error-correction model for maturities of 2, 5, and 10 years from 1994 to 2004 … counterparty default risk by mark-to-market and collateralization. Swap spreads reflect the LIBOR credit quality (credit component …