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A Survey on Modeling and Analysis of Basis Spreads

10 Pages Posted: 8 Dec 2009  

Masaaki Fujii

University of Tokyo - Faculty of Economics

Yasufumi Shimada

Shinsei Bank, Ltd

Akihiko Takahashi

University of Tokyo - Faculty of Economics

Date Written: November 12, 2009

Abstract

The recent financial crisis has spiked the credit and liquidity premia among financial products, and significant widening of basis spreads among Libors with different tenors and currencies has been observed in interest rate markets. Our previous work, "A Note on Construction of Multiple Swap Curves with and without Collateral" has developed an arbitrage-free curve construction method with all the relevant spreads taken into account. This short note carries out a brief survey on the existing analysis of spreads' dynamics and pricing models as a preparation for the development of a model that enables us to price and hedge generic financial derivatives under the new market condition.

Keywords: Libor, swap, tenor, swap spread, curve, overnight index swap, cross currency, basis spread

Suggested Citation

Fujii, Masaaki and Shimada, Yasufumi and Takahashi, Akihiko, A Survey on Modeling and Analysis of Basis Spreads (November 12, 2009). Available at SSRN: https://ssrn.com/abstract=1520619 or http://dx.doi.org/10.2139/ssrn.1520619

Masaaki Fujii

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

Yasufumi Shimada

Shinsei Bank, Ltd ( email )

Chiyoda, Tokyo
Japan

Akihiko Takahashi (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

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