I am trying to teach myself about interest rate swaps, how they are priced, etc... Easy enough - just comparing cash flows of fixed and floating rate bonds.

However, what I'm struggling with is how the future interest rates (as well as the discount factors) are being determined. These are never clearly explained and the articles/books simply say 'we use this term structure' or 'that term structure'.

In a more general context, my question is how do they determine with *certainty* (which is what the texts seem to imply) the value of something (ie the interest rate) that only materialises in the future? They never explicitly state that we use the returns (or yields) on a certain product, to *predict* what the interest rates might be in the future...

If my inferred understanding is correct, what they are actually doing is talking about different ways to get an estimate of what they THINK the interest rates in the future will be. The different methods being those which use for example some variant of the yield curve of zero-coupon Treasury securities, where the yield on each product with maturity T years is used as the interest rate realised in year T.

It is not immediately obvious, or explained, why these methods make sense; have they been verified empirically at some point and are now taken as granted to be true or good enough estimates?

**PS:** I am particularly interested in answers more closely related to industry practice as opposed to academic research.