Cross Currency Swap Valuation

15 Pages Posted: 9 Apr 2009  

Wolfram Boenkost

Lucht Probst Associates GmbH

Wolfgang M. Schmidt

Frankfurt School of Finance & Management Gemeinnützige GmbH

Date Written: May 6, 2005

Abstract

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.

Keywords: interest rate swap, cross currency swap, basis spread

JEL Classification: G13

Suggested Citation

Boenkost, Wolfram and Schmidt, Wolfgang M., Cross Currency Swap Valuation (May 6, 2005). Available at SSRN: https://ssrn.com/abstract=1375540 or http://dx.doi.org/10.2139/ssrn.1375540

Wolfram Boenkost

Lucht Probst Associates GmbH ( email )

Grosse Gallusstr. 9
Frankfurt, 60311
Germany

HOME PAGE: http://www.l-p-a.com

Wolfgang M. Schmidt (Contact Author)

Frankfurt School of Finance & Management Gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

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