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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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