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kelang
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Posts: 46
Joined: November 14th, 2011, 4:53 pm

XCCY swap valuation under CSA...

February 24th, 2012, 4:04 am

Hi All,Just a quick question about the xccy swap valuation under CSA:Say we have an at-the-money USD/DOM xccy swap trade collateralized in USD. For the USD leg, it will be valuated with FF discounting curve and 3M forcasting curve. Then, the USD leg now has a non-zero PV, which will create some sort of "FX Position" on the book. Any comments on this?thanks
 
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Jeriot
Posts: 97
Joined: January 16th, 2007, 11:54 am

XCCY swap valuation under CSA...

February 28th, 2012, 12:48 pm

What sort of comments are you looking for? Why would there be a difference in valuation whether the swap is traded under a CSA or not?
 
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kelang
Topic Author
Posts: 46
Joined: November 14th, 2011, 4:53 pm

XCCY swap valuation under CSA...

February 28th, 2012, 1:08 pm

QuoteOriginally posted by: JeriotWhat sort of comments are you looking for? Why would there be a difference in valuation whether the swap is traded under a CSA or not?There is no problem while changing from Libor discounting to OIS discounting. We can make the valuation consistent. However, when you valuate a cross-curreny trade (say USD/DOM), the USD leg is not at par anymore which makes me a little bit uncomfortable because one has to manage the USD exposure on the book. I heard some place valuates the cross-currency trade depending on the moneyness, that is, the at-the-money part is valuated off the libor curve, while the left-over part is valuated off the OIS curve.Personally, I don't think that makes sense and it is like an ad-hoc treatment, however, just want to see if people on Wilmott have different opinions...thanks
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