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Cross currency swap valuation

  • Boenkost, Wolfram
  • Schmidt, Wolfgang M.
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    Cross currency swaps are powerful instruments to transfer assets or liabilities from one currency into another. The market charges for this a liquidity premium, the cross currency basis spread, which should be taken into account by the valuation methodology. We describe and compare two valuation methods for cross currency swaps which are based upon using two different discounting curves. The first method is very popular in practice but inconsistent with single currency swap valuation methods. The second method is consistent for all swap valuations but leads to mark-to-market values for single currency off market swaps, which can be quite different to standard valuation results.

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    Paper provided by Frankfurt School of Finance and Management, Centre for Practical Quantitative Finance (CPQF) in its series CPQF Working Paper Series with number 2.

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    Date of creation: 2004
    Date of revision:
    Handle: RePEc:zbw:cpqfwp:2
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