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rainking100
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Joined: March 13th, 2009, 11:05 am

USD accreters with EUR funding

January 17th, 2011, 11:03 am

Hey all, I have noticed on bloomberg that more and more USD Bermudan accreting trades are being sold (probably into Asia?) with issuers that fund in EUR. this means that there must be a cross-currency component involved somewhere? Does anyone have an opinion on modelling these things? I can't decide if the cross-currency bit is important or not. i.e. is it worth investing in the development work to get a proper higher factor model, or are ad-hoc adjustments usually ok to price and risk/manage?Thanks
 
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prodiptag
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USD accreters with EUR funding

January 18th, 2011, 9:56 am

well not always, for USD, if it is EUR issuers for SEK or MYR, no doubt, but even EUR issuers sometime may keep USD open, esp now that there are chances they have shortage of USD funding. Apart from that, if you indeed have a xccy overlay, then that has to be also callables, and if that is the case, then with the accreters and the current term-structure of the eur/usd basis and the fx vol, you probably cannot model it without modelling the xccy explicitly, no? but I doubt this is very common, for all you know, the issuers fund these in straight usd
 
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rainking100
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USD accreters with EUR funding

January 19th, 2011, 7:17 am

HiYes, I take your point that many european issuers will issue in USD, but in fact many instances of USD accreters with explicit EUR funding have a also traded. These callable trades are to some extent like standard pure USD callable accreting swaps , with a callable cross currency swap overlayed , although of course, the 2 calls are linked. Part of me thinks the additional bit (the xCCY swap) is rather benign, but Im not sure if its the dominant part of me yet!Thanks