Ziggy, did you check at that time how much was the cross ccy swap? Without the cross ccy swap you will never match the FX forward using just depo and IRS

<t>Sorry Thusi, but I disagree what you are doing? What ccy are you building the yield curve fro? For G10, EUR, USD, JPY, CHF, etc... you way it is not the way... If you want to build a yield curve consistent up to 10y and match the FX Forward Rate you have to boostrap from depo, Swap, Basis Swap an...

Well you are right! I was thinking specially in G10. For the NDF market you boostrap directly out of NDF, my apologize! I didnt want to be general but try to guess the root of the original question

<t>Hi Thusi,You dont build the Yield curve using FX Forward. The FX Forward should be an output of you both yield curve (ccy1 and ccy2). In order to match you FX Forward you need to incoporate in your stripping the cross currency swap points. So you boostrap using Depo (below 1y), Swap (after 1y), B...

<t>Well each market is different, that for sure. And that difference will make a influence in the shape of the smile. The USDJPY smile is governed by the big PRDC position the market built up for years and still the same position is on. The equity market is full of fears, so the smile is very skewed...

<t>Hi pcaspers,Yes I said there is (model independent) arbitrage, if no market smile is present. The only condition required is observe a volatility which change with time. As I explained below if you are long the fly (lond Strangle and short Straddle) you can make money if there is not smile...It s...

<t>Hi gc,I think what you says it is true in all asset classes except in FX where the traders do trade convexity as instrument (like call or put). However the explanation of why the smile is not from my trade quote but because of the existence of free lunch with the strategy I have just explained.Ch...

<t>Hi bakait,Well I tried to read Alan link about why the smile and to be honest I got headache reading the explanation. Your question is very simple to answer (it is a fundamental question though). Imagine the BS world (no smile) just one vol and that's it. Now suddendly you observe that vol (the u...