Spread CMS10 TEC10 simulation

Squal · July 5th, 2005, 6:29 am

Hi,I wish to discount flow from a product that pays CMS10 - TEC10 (TEC10 is similar to the yield of a constant french goverment 10 year bonds). Could you confirm the following process1) Simulation of CMS10 forward2) Simualtion of TEC10 forward3) discount flow, but the question is should I discount on the goverment discout or on swap discount ?Could someone give me some clues ? I guess I should adjuste the convexity ?Regards,

kipi001 · July 5th, 2005, 5:13 pm

I think you can find the answer in "les swaps, Chazot, Economica"...i remember he gives a pricing methodology, but i'm not really sure;if you don't have the answer the nextweek, i will have a look on he book, and give you an answer.regards.