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Question

Suppose that 3-month, 6-month, 12-month, 2-year, and 3-year OIS rates are 2.0%, 2.5%, 3.2%, 4.5%, 5%,

respectively. The 3-month, 6 month, and 12 month OISs involve a single exchange at maturity; the 2-year and 3-year OISs involve quarterly exchanges. The compounding frequencies used for expressing the rates correspond to the frequency of exchanges.

Calculate the OIS zero rates using continuous compounding. Interpolate between continuously compounded rates linearly to determine rates between 6 months and 12 months, between 12 months and 2 years, and between 2 years and 3 years. You may find Excel's Solver useful.

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