Money Market Basis Curve Construction

The traditional approach for building non-reference interest rate curves can be used to price typical money-market basis swap deals. This methodology could introduce inconsistencies. Discounting a cash flow with different curves just because different products generate them is undesirable and the discrepancies should be controlled.

A solution that tries to address this inconsistency issue is proposed. The main idea is to produce two new curves (one for forecasting and one for discounting) so that both basis swaps and interest rate swaps are correctly re-priced in the same time.