0.1 LIBR FORWARD RATE
Consider time \(t\) with two maturity dates \(S<T\). We consider the forward interest rate of \([S,T]\) contracted at time \(t\). A riskless portfolio can be constructed with no initial endowment that at time \(t\) one can short 1 unit of bond that matures at \(S\). This brings immediately cashflow \(p(t,S)\) and a debt returning 1 at time \(S\).
However, one can long \(\frac{p(t,S)}{p(t,T)}\) unit of bond that matures at \(T\) using the \(p(t,S)\) immediate cashflow, this brings a cashflow of \(\frac{p(t,S)}{p(t,T)}\) at time \(T\). In all, this portfolio has no immediate cashflow, but we have to pay 1 at time \(S\) and receive \(\frac{p(t,S)}{p(t,T)}\) at time \(T\). If there exists a constant simple interest rate on \([S,T]\) denoted \(L(t;S,T)\), then \[ 1\cdot[1+L(t;S,T)(T-S)]= \frac{p(t,S)}{p(t,T)}, \] solves \[ L(t;S,T)= \frac{1}{T-S}\left( \frac{p(t,S)}{p(t,T)}-1 \right), \] called the simple forward rate on \([S,T]\) contracted at \(t\), also called the LIBOR Forward Rate.
0.2 LIBOR SPOT RATE
If one uses the continuous-time compounded interest rate mode instead and denote the rate as \(R(t;S,T)\) then \[ 1\cdot e^{R(t;S,T)(T-S)}= \frac{p(t,S)}{p(t,T)} \] solves \[ R(t;S,T)= \frac{1}{T-S}\log\left( \frac{p(t,S)}{p(t,T)}\right). \] The spot rates on \([S,T]\) is just the forward rate contracted at time \(S\) i.e. by setting \(t=S\), we get the spot rates \[ \begin{align} L(S;S,T) & = \frac{1}{T-S}\left( \frac{1}{p(S,T)} -1\right) \\ R(S;S,T) & = \frac{1}{T-S}\log\left( \frac{1}{P(S,T)} \right) \end{align} \] where \(L(S;S,T)\) is called the LIBOR spot rate.