Hi,Can some one clarify the below queries for me? 1Q. Suppose I have a vanilla IRS in USD which is collateralized in EUR. Which OIS discounting should I use, USD OIS or EONIA? I have read in text that OIS of collateral currency is to be used but in practice (at my office), USD OIS is being used. 2Q. When we value a cross currency swap, say USD (Leg1) - EUR (Leg2). Could you let me know if the following procedure is correctLeg 1: Forward curve is USD LIBOR (Dual calibrated with USD OIS) Discount curve is USD OISLeg 2: Forward curve is sum of 1. EUR LIBOR Dual calibrated with EONIA + CCY Basis between USD and EUR (usually negative) Discount curve is USD OIS Thanks in advance.

This, surely, isn't the best way to ask a question...In answer to 1, it's neither. IMHO, you should be using a x-ccy basis adjusted EUR OIS.

QuoteOriginally posted by: kirankondapalliHi,2Q. When we value a cross currency swap, say USD (Leg1) - EUR (Leg2). Could you let me know if the following procedure is correctLeg 1: Forward curve is USD LIBOR (Dual calibrated with USD OIS) Discount curve is USD OISLeg 2: Forward curve is sum of 1. EUR LIBOR Dual calibrated with EONIA + CCY Basis between USD and EUR (usually negative) Discount curve is USD OIS I think, Leg 2: Assuming the swap is collaterized in USD. Forward is EUR LIBOR calibrated against EONIA. Discount is implied from EUR/USD ccy basis.

Hi,Thank you both. I understand now.

1Q: As Mghoul says, you should use the interest rate from the CSA (EUR OIS) in this instance, cross-currency-adjusted to the currency of your cashflow. 2Q: You are correct that you should be using a consistent discounting level, but you need to be applying a cross-currency adjustment as well on the EUR side. Which discounting level you use depends on the actual or (in the case of bootstrapping from broker quotes) sensible assumed default collateralisation for the trade. If you are talking about bootstrapping from xccy quotes then the question is what discounting level should you assume? There is no central clearing for xccy swaps so in practice I have not heard any sensible argument to vary from USD 3M Libor as the implied discounting level to use when interpreting broker xccy quotes.See here for papers: http://papers.ssrn.com/sol3/cf_dev/AbsB ... id=1311751

Could you please let me know if the following is correct?Swap Leg 1 Leg 2 USD EUR Collateral Currency USD Tenor 3M 3M Leg1 Forward curve USD/3M/LIBOR Discount Curve USD OIS Curve Leg2 Forward curve: EUR/3M/EURIBOR + (USD-EUR) LIBOR basis spread (negative) Discount Curve: USD OIS + (EUR-USD) OIS basis spread Query: Can we adjust the USD -EUR LIBOR basis spread on USD leg side Instead of on EUR side? Swap Leg 1 Leg 2 USD EUR Collateral Currency EUR Tenor 3M 3M Leg1 Forward curve: USD/3M/LIBOR Discount Curve: EONIA curve + (USD - EUR) OIS basis Spread ( negative) Leg2 Forward curve: EUR/3M/EURIBOR + USD-EUR LIBOR basis spread Discount Curve: USD OIS + (USD-EUR) OIS basis spread Query Can we adjust the USD -EUR LIBOR basis spread on USD leg side Instead of on EUR side?