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Cheapest-to-deliver (CTD) discount curve

Collateral posted in currency XYZ is remunerated at $\text{OIS}_{\text{XYZ}}$, which translates, using the XYZUSD basis, into a synthetic USD rate $\text{OIS}_{\text{USD}}^{\text{XYZ}} = \text{OIS}_{\...
Antoine Conze's user avatar
10 votes
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How to Bloomberg compute the implied Yield ? What is FX swap basis spread?

1 ) The value 1.062732 is the Forward outright as quoted on FRD. Your pricing source is BGN (Bloomberg Generic New York). That ...
AKdemy's user avatar
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6 votes

What does **Long Call EURUSD** mean?

First please keep in mind that EUR (and GBP) are quoted "cable". So if the USD EUR exchange rate is quoted as 1.1, for example, that means that (quotation or countercurrency) USD 1.1 = (base currency)...
Dimitri Vulis's user avatar
6 votes

Relation between ATM, RR and BF

The ATM is an outright position (long 50 delta put and 50 delta call) so the main exposure is vega. It is the riskiest of the three, and demands a higher bid-offer spread from market makers to ...
Chris Taylor's user avatar
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6 votes

Cross Currency Swap Attribution

As for the book, the best one I have come across is Pricing and Trading Interest Rate Derivatives by Darbyshire, although it's a bit pricey (indeed as most finance books are) (https://www.amazon.com/...
Jan Stuller's user avatar
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5 votes

STIR topics: Implied FX-OIS Basis and FX Forward/Swap Pricing

Implied FX-OIS basis should be pretty simple to "compute", it is the classical "Cross-currency" basis observed in FX Swaps & FX Forwards, that can be backed out when plugging ...
Jan Stuller's user avatar
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5 votes
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Why has cross currency basis become higher since the 2008 crisis?

When you look at EUR/USD Cross Currency basis historical chart, you will notice that it was very similar in magnitude before 2008 to what it is now: in other words, there has always been some cross-...
Jan Stuller's user avatar
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4 votes

What does **Long Call EURUSD** mean?

You would actually sell the option to yourself if you were long a Call on EUR and short a Put on USD. FX is quoted as CCY1CCY2 (e.g. EURUSD) where it shows the amount of CCY2 needed to buy/sell 1 unit ...
AKdemy's user avatar
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4 votes

Cross Currency Swap - is par basis supposed to change while OIS discounting rate is changing?

So you have a USDJPY cross currency basis swap priced using: USD OIS discounting and USD Libor pojection for the USD leg USDJPY Basis curve discounting and JPY Libor projection for the JPY leg The ...
David Duarte's user avatar
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4 votes

Calculating Cross Currency basis swaps

I do it very simply. First, figure out the swap rate for each currency. Let's do those for 1y EUR/USD: 1) y US swap is 1.8104 2) y EUR swap is -.5432 mid (yes, negative) 3) look at the implied ...
JoshK's user avatar
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4 votes

What drives a downward move in the Xccy Basis curve?

In addition to Dimitri's comment and user35980's answer above, the following comes to mind: so much USD has been printed by the FED already and now with Democratic majority likely, more fiscal ...
Jan Stuller's user avatar
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4 votes
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FX Hedging costs when using 3m FX Fowards vs XCCY swaps for an IG Bond

To get an accurate answer you probably won't be able to get around using a proper pricer and comparing the two methods. To contrast the two approaches: FX Forwards: convert all cashflows from CCY1 to ...
oronimbus's user avatar
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4 votes
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Should Cross-Currency Basis Swaps exchanging risk free rates trade flat?

You are correct, the currency basis swaps between risk free rates do not trade flat. To understand why , it’s instructive to imagine how to arbitrage it. Pretty easy, it might seem. One would ...
dm63's user avatar
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4 votes

pricing in the case where payment currency and collateral currency are different?

TO answer the question in the comment. Suppose you have a USD cash flow receivable in 5yrs and you are trying to calculate the PV. You need to know the interest rate that you are paying on the EUR ...
dm63's user avatar
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3 votes

Calculating Cross Currency basis swaps

The general way to do this is first take observed market spreads for various tenors, then calibrate a discount curve such that the foreign leg plus the spread at each tenor discounted at the ...
Math's user avatar
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3 votes

Understanding Mechanics and Specifics of Cross-Currency Basis Swap

I’ll do my best. 1) the start date for a standard currency basis swap is I believe 2 business days after the trade date. This allows time for the banks to set up the payment instructions for the ...
dm63's user avatar
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3 votes
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Existential question about currency exchange Risk Factor

There is no contradiction and basically no ambiguity. Furthermore, the kind of product (linear or non-linear) has no bearing on the question. It is really only a question of basic calculus. Let us ...
g g's user avatar
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3 votes

Cross Currency Basis Swap

To add to dm63's answer, I think there are a few reasons - It's worth asking about why a cross-currency basis spread exists in the first place. The standard explanation is demand from (for example) ...
Chris Taylor's user avatar
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3 votes

Cross Currency Basis Swap

To give a short answer , it is very simple. Market participants cannot actually borrow and lend freely at USD Libor or Euribor. Hence the basis swap cannot easily be arbitraged away.
dm63's user avatar
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3 votes

What is the EUR swap curve on Bloomberg? I.e. what is the EUR equivalent of S23 curve on Bloomberg?

The curve Bloomberg EUR swaps curve (YCSW0045 Index) is indeed the euro equivalent of the Bloomberg USD swaps curve (YCSW0023 Index). By equivalent I mean that each curves are constructed in the same ...
Olórin's user avatar
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3 votes

cross currency basis spread

A recent report by the BIS provides a good explanation: Because they are hedging a net US dollar liability, Australian banks on balance supply US dollars in the cross-currency swap market. That ...
nbbo2's user avatar
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3 votes
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Forward EURUSD exchange rate for a Future date

I think it's possible. When you say the RFRs are flat, I think we can interpret that as flat for all maturities, including the 1y. So from the 1y Forward rate, we can back out the spot rate via the ...
Jan Stuller's user avatar
  • 6,178
3 votes

What drives a downward move in the Xccy Basis curve?

The xccy basis is a measure of the deviation from covered interest parity. This is a fancy way of saying how much more demand for USD over MXN (or vice versa) there is in the market. Assuming the USD/...
user35980's user avatar
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3 votes

AUD funding rates

In FX swaps and FX forwards, the following formula holds: $$S_{AUD/USD}(1+r_{USD})=(1+r_{AUD}+r_{basis})F_{AUD/USD}$$ The Spot $S_{AUD/USD}$ and the Forward $F_{AUD/USD}$ are traded and their prices ...
Jan Stuller's user avatar
  • 6,178
3 votes

Why might a cross currency swap from EUR into USD have higher CVA than a cross currency swap from USD into EUR?

The CVA on a cross currency swap comes mostly from the final exchange (being the biggest flow). If you as an end user are paying the EUR, then the bank is receiving the EUR a d paying the USD. They ...
dm63's user avatar
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3 votes

Plotting a CSA curve in QuantLib

You can also validate the QuantLib implementation with rateslib. To define local currency EUR and USD you need to specify two ...
Attack68's user avatar
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3 votes
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Why do we theoretically have to take cross currency basis volatility into account when constructing Cheapest To Deliver (CTD) discount curves?

Because the formula contains the expression max{currency bases}. Whenever there is a max, there’s an option. Eg a regular call option payout max{0, S-K}. The formula expresses only the intrinsic ...
dm63's user avatar
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3 votes
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Which Day Count Convention applies in a Cross Currency Swap

Your pricing formula for the forward rate is incorrect. You should use $$ \mathrm{Forward} = \mathrm{Spot} \times \frac{1 + r_{\rm USD}\times \frac{ ACT}{DayCount_{\rm USD}}}{1 + r_{\rm foreign}\times ...
Chris Taylor's user avatar
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3 votes
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STIR Topics: XCCY pricing and trilemma between SOFR, FF & FRA

The USD/JPY FX Swaps are quoted the same "way" as the spot, i.e. today's quote for a 3-month forward is: Bid 138.310, Offer 138.317, Mid 138.313. The spot FX rate is 138.325, so the mid 3-...
Jan Stuller's user avatar
  • 6,178
3 votes

Comparing debt issuance across currencies

In order to determine which bond issuance would be cheaper, you would need to compare the all-in costs of each option. This involves taking into account the bond's yield and any associated currency ...
Hans-Peter Schrei's user avatar

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