The LME curve interpolation tool within Loqsea creates a non-linear, time weighted curve to better reflect the market norms.
Kevin Nutt, Head of Market Development, 30+ years in the metals industry.
Forward curve interpolation estimates values for prompt dates that have not traded, using the prices and carry rates around them. On the LME, many daily, weekly and monthly prompt dates are illiquid on a given day, so interpolation is a routine part of valuation and risk management. Because LME curves are rarely linear, the method used makes a real difference.
Methods vary. Some firms use the previous evening's closing carry rates, adjusted for intraday moves in the outright price. Others add carry rates traded during the day, or firm bids and offers. The most sophisticated take current outright prices and carries traded intraday, and interpolate an entirely new curve.
The exchange's official and closing prices are the benchmark for end-of-day valuations, and form the basis of overnight client margin calls and trader book valuations. The LME Interpolation Curve in Loqsea is an intraday estimate for a firm's own trading and risk during the session, and its valuations can still end up far from the exchange's end-of-day prices.
A broken date is an LME prompt date outside the most traded dates: cash, three months and the third-Wednesday monthly prompts. Because the LME trades daily out to three months and weekly out to six months, most prompt dates are broken dates. They trade thinly, so positions held on them often have no traded price to value against.
