i don't have any hands on experience with real trading...i was thinking more so from a theoretical angle!but it will be really difficult to tell later on i.e. cause i can just use that for getting a price (swap rate) bt then mtm the swap keepin df 1 @spot..

but i can always take an opposite position where i am actually paying/receiving par (the swap rate using df 1 at spot) and make money out of the spread between the 2 swap rates!

this way someone can make money even on day 0...i.e. the day the swap is initiated...similar to using a spread rite!

i am a bit naive so hope u won't find it a prob to answer....if i am discounting back to today then it will result in another problem...most of the swaps are spot started rite! so how can i discount them back to today!

i know its not the best assumption, but then should i have different curves for swaps and fx instruments?

correct me if i am wrong..bt can we use tbill rates for investments with horizon as say 2 years!

u can also assume df at t, t+1 and t+2 are all 1.

but for valuations will it be right to use diff curves ie df 1 on today and df 1 on spot for fx instruments and swaps respectively?

Somersetian,you can check www.pyxis-it.com. If required i can send in more details.

russian default case is one example of hazards caused by considering sovereign debt to be risk free...its only when in short term they can be taken to be risk free...for long term i think libor rates are a better benchmark..

as most of rates are quoted as on spot...ur df is 1 on spot and not on today..but if you have curve with o/n point most logical extension wud be take 1 as of today and follow the approach 2 that u had mentioned

the idea should be to match the profile of ur investment to decide on a risk free rate...

<t>There is a slight difference the the approaches mentioned and that is the reason why you are getting a differenceApproach1: in this case you are taking df as 1 at spot so df at today is >1Approach2: in this case df today = 1 so df at spot < 1so i think its jst about deciding which approach you wa...

<t>First thing...relating credit spreads with CDS premium though very obvious, the argument does not really provide any value. Credit spread does not solely consist of default risk but also includes..liquidity risk premium + market(systematic) risk premium...Secondly...as i understand..ur logic of t...