Libor Curve

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Definition: Libor Curve

Libor curve refers to a graph representing different maturities of London Interbank Offered Rate (LIBOR).


LIBOR is like a agreed upon benchmark floating rate which is used for interbank lending by banks with high credit ratings. The LIBOR curve represents short-term periods of less than one year.


The LIBOR curve is a proxy for the risk free rates like the treasury curve. Libor curve has the following uses:

1. Interest rate swaps

2. Predicting long term interest rates

3. Acting as a near proxy for risk free lending rates

4. Helps in measuring the risk return trade off for other short term instruments.

 


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