Bank One Corporation - Page 203

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                    4.  Midmarket Swap Curve                                          
               The set of mid-market rates for various maturities is known            
          as the midmarket swap curve.  The midmarket swap curve is drawn             
          from the averages of the bid and ask prices for swaps of standard           
          maturities quoted in the interdealer market.  At-market swap                
          rates for all possible maturity dates can be obtained by                    
          interpolation from the midpoints between the bid and ask prices             
          of the standard maturities as derived from the dealer quotes and            
          reported by major vendors of financial data.                                
               The midmarket swap curve implies a curve of forward interest           
          rates and a curve of discount factors.20  One curve implies a               
          second curve if the values on the second curve can be derived               
          mathematically from the values on the first curve.  The second              
          curve is said to be implied by the first curve, and, in the case            
          of interest rates or discount factors, the interest rates or                
          discount factors on the second curve are said to be implied                 
          interest rates or implied discount factors with respect to the              
          first curve.  Consider, for example, a curve of periodic interest           
          rates and a corresponding curve of effective annual yields.  Each           
          of these curves is implied by the other.  Each point on either              
          curve can be derived by a mathematical formula from the                     
          corresponding point on the other curve.  This implied concept is            


          20 A discount factor states the value today of $1 to be                     
          received on a future date.                                                  




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Last modified: May 25, 2011