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Cross currency swap valuation

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  • Boenkost, Wolfram
  • Schmidt, Wolfgang M.

Abstract

Cross currency swaps are powerful instruments to transfer assets or liabilities from one currency into another. The market charges for this a liquidity premium, the cross currency basis spread, which should be taken into account by the valuation methodology. We describe and compare two valuation methods for cross currency swaps which are based upon using two different discounting curves. The first method is very popular in practice but inconsistent with single currency swap valuation methods. The second method is consistent for all swap valuations but leads to mark-to-market values for single currency off market swaps, which can be quite different to standard valuation results.

Suggested Citation

  • Boenkost, Wolfram & Schmidt, Wolfgang M., 2004. "Cross currency swap valuation," CPQF Working Paper Series 2, Frankfurt School of Finance and Management, Centre for Practical Quantitative Finance (CPQF).
    • Handle: RePEc:zbw:cpqfwp:2
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    interest rate swap; cross currency swap; basis spread;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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