Two curves, one price

The credit crunch that began in the second half of 2007 has triggered, among many consequences, the explosion of the basis spreads quoted on the market between single-currency interest rate instruments (swaps in particular) characterised by different underlying rate tenors (Xibor three-month and Xibor six-month, etc, where Xibor denotes a generic interbank offered rate). In figure 1, we show a snapshot of the market quotations as of February 16, 2009 for the six basis swap term structures

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