OIS curve and cross currency basis

gammaslide · December 5th, 2012, 5:30 pm

If I had eonia rates out to 30yrs and wanted to convert this into USD OIS rates.Do I take the cross currency swap basis and add it to the eonia rates, not sure how to do it with different tenors for swap versus OIS?and then bootstrap to get USD OIS discount factors or boostrap first and then add basis to zero coupon rates?Question is around valuing a collaterlatized eur swap with USD collateral.

PvalAnal85 · December 5th, 2012, 6:19 pm

Hi Gammaslide,Why are you valuing a EUR swap with USD collateral? Is the USD collateral cheapest to deliver, and does the CSA agreement allow you to post USD collateral on a Euro trade? You're aware that ISDA are launching standardized CSAs very soon with 17 currency silos, so you shouldn't have to collateralize one G17 currency using another...The issue you have here is that XCCY OIS basis swap quotes are not particularly liquid in the market. You may have to do this using FX forwards...

BerndSchmitz · December 6th, 2012, 8:46 am

If the contract is a EUR-swap and collateral is specified to be USD then one has to take USD-ois for discounting. can't change that ...@ gammaslide: why not take USD-ois directly (i.e. bootstrapping USD-ois swaps)? As I see it you could convert EUR-ois into EUR-3m (EUR 3m vs ois basis), switch this to USD-3m (with an fx basis spread) and turn this into USD-ois (USD 3m vs ois basis). But then you would have an USD-ois curve with EUR collateral (not entirely sure about that pointcheers, bernd)