# Tag Info

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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 compensate them for the additional risk. The RR is a spread position (long 25 delta call, short 25 delta put) with zero vega, the main exposure is skew. Because the ...

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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 initial exchange of notionals. 2) long the basis means you make money if the -41 becomes -40 in the market. This basis essentially measures the demand for ...

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First, we will write down the payoff of the mark to market basis cross currency swap. Second, we will do some exploring. Third, we hope that our exploration will be fruitful so that we can understand where we need to calculate the convexity adjustment. The forward curves required are: Domestic LIBOR curve $L^\text{d}$, e.g., if the domestic currency is ...

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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) EUR 1. Most other currencies are quoted the other way, so if the USD CHF rate is 1.1, that means CHF 1.1 = USD 1. An investor is "long" an option means ...

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The typical interest rate parity argument goes something like this: Let $f_0$ be the EUR(domestic)USD(foreign) exchange rate. 1) You convert it to USD $f_0$ and invest at $r$ to receive USD $(1+r\tau)f_0$ at $T$. 2) You keep EUR 1 and you can invest in at $r^*$ to receive EUR $(1+r^*\tau)$ at $T$. The two scenarios might be assumed to be equal at $T$ ...

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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 manner : using sames types of instruments (deposits, FRAs, futures, swaps) with the same bootstrapping/implying method (exact fit vs best fit). For each you ...

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In addition to @dm63's answer maybe two references that are useful: I am not a FI/rates expert, but this book really helped me understand the basics of how things work in practice (not just in theory). And a nice introductory paper specifically on cross currency swaps.

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Cross currency swaps (XCSs) are LIBOR instruments. The difference is the difference in 7y swapspreads in the two currencies. A swapspread is the difference between the treasury yield and LIBOR in each currency.

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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 yield for the FX spot vs the 1y fwd. Spot is 1.1052 and 1y is 1.1341275. That gives you .236075 EUR more at settlement, which is 2.136% rate of 2.136 - [us ...

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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 calibrated curve is equal to the local currency leg discounted at OIS. Then you can calculate a spread from the curve for any given tenor using the two discount curves.

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Say a US investor with 1mm USD wants to buy a 10Y Volkswagen bond in EUR priced at 100 EUR with a 5% coupon. First that investor needs to acquire EUR for purchase without exposing themselves to FX risk. To do this they execute a cross-currency swap. The investor will pay 1mm USD and receive say 1.1mm EUR with the agreed cashflows: he will receive USD 3M ...

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