In finance, bootstrapping is a method for constructing a (zero-coupon) fixed-income yield curve from the prices of a set of coupon-bearing products, e.g. bonds and swaps.[1]
A bootstrapped curve, correspondingly, is one where the prices of the instruments used as an input to the curve, will be an exact output, when these same instruments are valued using this curve. Here, the term structure of spot returns is recovered from the bond yields by solving for them recursively, by forward substitution: this iterative process is called the bootstrap method.
The usefulness of bootstrapping is that using only a few carefully selected zero-coupon products, it becomes possible to derive par swap rates (forward and spot) for all maturities given the solved curve.