Hello Everyone, I am working on rates desk but I never touch this before. The question is how to construct the basis curve and Xccy curv e based on the market quote. Example 1 for Basis Curve, CAD 3m vs CAD 1m, I choose one stub rate, 7 futures and 15 swaps (2y,3y,...,40y) and I can get the market quotes for these instruments. From Bloomberg, I can get 3s1s basis for 6m, 1y, 2y, 4y, ..... I can construct the yield curve from the instruments.Example 2 for Xccy Curve, USD LIBOR vs EUR3M, I have market quotes for a series of instruments and Xccy basis spreads for FX 1M FX 2M.... FX 1Y...FX2Y, SWAP 3Y...SWAP 30YI am really appreciated your help~ThanksMatix

I think this is very simple question for your guys. Could you please recommend some docs or books on the market convention on the curve, i.e. basis curve, xccy curve... I google this topic over 2 weeks and I can not find any information on this topic. Please help me out.ThanksMatrix

I suggest two things:1) Work on your googling skills ;-)2) Read the following threads, you should find all your answers:Curve Construction in todays market - Technical Forum Basis swaps - conversion factor - Technical Forum Basis in the short end of the curve ... - Technical Forum which is the right curve for discounting??? - Technical Forum Boostrapping a Yield Curve Using FX Forward Points - Technical Forum OIS bootstraping - Technical Forum OIS Curve Discount Factors - General Forum Smoothing Curves after Bootstrapping? - General Forum

Hi pimpel, Thanks a lot. Actually I google this topic over 2 weeks. Probably I input the wrong key words, I will take a look on what you mentioned. Thanks a lot~~~~RegardsMatix

Hi Pimpel, Sorry, I have one question for your post in the thread "which is the right curve for discounting?". You said "How would you precisely calculated the EUR discount curve? Would that be correct, if I:1) calculated USD cash flows using USD Libor 3M projection curve2) discounted them using FedFunds vurve3) calculated EUR cash flows based on Euribor 3M projection curve + EURUSD basis margin4) solved for discount factors in EUR making the basis swap fair?" My questons are:1. For 2) how come we use FedFunds curve as the discounting curve rather than USD OIS curve?2. For 3) why we need add EURUSD basis margin? Is this the Xccy basis?3. For 4) Could you please give me one example for this? I totally lost. Thank you for your time and concerns~RegardsMatrix

QuoteOriginally posted by: matrixpowerHi Pimpel, Sorry, I have one question for your post in the thread "which is the right curve for discounting?". You said "How would you precisely calculated the EUR discount curve? Would that be correct, if I:1) calculated USD cash flows using USD Libor 3M projection curve2) discounted them using FedFunds vurve3) calculated EUR cash flows based on Euribor 3M projection curve + EURUSD basis margin4) solved for discount factors in EUR making the basis swap fair?" My questons are:1. For 2) how come we use FedFunds curve as the discounting curve rather than USD OIS curve?2. For 3) why we need add EURUSD basis margin? Is this the Xccy basis?3. For 4) Could you please give me one example for this? I totally lost. Thank you for your time and concerns~RegardsMatrixAd. 1. - USD OIS is the transaction where one leg pays fixed rate, the other realized geometric average of the Fed Fund rate. The thing is, that USD OIS is liquid up to 2Y, later on you have to use FedFund swaps - one leg pays 3M Libor, the other aarithmetic average of FedFund rate over 3M period plus spread.Ad. 2. correct, I meant Xccy basisAd. 3. I posted a lot in other threads and a lot of references to research papers. Good luck

one more thing - the scheme proposed is not always good, eveerything depends on the currency of your funding and collateral currency. The scheme proposed would be good for those, who have collateral in USD.

Thanks a lot. I am still reading these kind of things. Wish I can digest everything soon.RegardsMatrix