Hi to all, How does one calculate the `fair' price of a non-deliverable forward, e.g. for USD-CNY?thanks

the USD-CNY NDF should be spot exchange rate - but I think the NDF market has more information in it than the spot. so in a sense if you look at the NDF it tells you where the expected spot is.

Is it then NDF=Spot * DF(usd)/DF(cny)? Then what is the difference with pricing a simple outright forward?

the issue with CNY is that the NDF is truly the fundamental interest as the spot is not freely tradeable. the usual arbitrage arguments are not useful

It's not the forward because NDFs are usually traded against currencies which are not freely convertible ... CNY for example.For the forward price argument to work, you need to be sure that you can exchange the two currencies in the future. Hence there is conversion risk. As a first approximation you can model it as "default": ie, country collapses => currency collapses => the CNY leg is worthless.Try a few of those:http://ideas.repec.org/a/bis/bisqtr/040 ... tmletc.The more interesting question, btw, is why cross-currency swaps between deliverable currencies trade at a basis (JPY/USD and EUR/USD). This has to do with the funding requirement of the marketparticipants.