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Do you know where can I find details about this methodology? Theoretically, in cases where the CSA allows collateral to be posted in different currencies, the counterparty will always choose the highest rate (cheapest bond).

However, as far as I understand, this can lead to discontinuities in the valuation when one rate is replaced by another and the general approach consists of using an attenuation parameter $\lambda$ between the rates.

Apparently, there is a famous paper from Piterbarg named 'Cooking with Collateral' providing details about all this, but I haven't been able to find it anywhere. Is there any way I can find this paper or a similar one explaining this attenuation concept? A short explanation of the methodology would be highly appreciated as well, how is this $\lambda$ obtained and calibrated?

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  • $\begingroup$ Can you elaborate on the concept of discontinuities. I have never experienced this or ever heard about this in practice. $\endgroup$
    – Attack68 ♦
    Commented May 9 at 17:56
  • $\begingroup$ Hi, thanks for your reply. I'm not entirely sure as I'm not familiar with the whole methodology but I understand that the weighting between the rates is used to avoid potential issues related to sudden jumps in the highest rate. $\endgroup$
    – vsa
    Commented May 10 at 10:35
  • $\begingroup$ I don't see why that would be relevant. When building multi-currency collateral curves the currency with the highest overnight rate at any point is chosen. A switchover at different tenors will never be discontinuous, assuming the underlying single-currency discount curves are continuous in overnight rates. $\endgroup$
    – Attack68 ♦
    Commented May 10 at 13:56

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