I have a number of eur/usd and gbp/usd MtM Basis swaps that are collaterized in USD. For the non-usd legs I'm constructing the muti-ccy csa discounting curve. Im using forwards for the short end of the curve and cross-currency basis swaps further out on the curve. Question is, should i be using constant notional cross currency swaps or MtM Basis swaps for this. MtM basis swaps are more liquid, so think they would be better, but not certain.The choice has a significant impact on my IR delta.

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    $\begingroup$ You should use MtM xccy which are more liquid, just make sure to use the appropriate pricers when bootstrapping. $\endgroup$ – Antoine Conze Mar 1 '18 at 21:13
  • $\begingroup$ Thanks Antoine. Would you be able to expand on what you mean by the "appropriate pricers" $\endgroup$ – Ajk Mar 1 '18 at 21:55
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    $\begingroup$ Pricers that take into account the MtM reset. See papers.ssrn.com/sol3/papers.cfm?abstract_id=1440633 for the full formulas that involve covariances for the various convexity adjustments. As a working approximation you can view the MtM xccy as a strip of forward start swaplets, each with reset leg notional equal to the fixed notional times the forward FX rate. $\endgroup$ – Antoine Conze Mar 6 '18 at 9:52

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