Comprehensive Theory of a Cross Currency Basis Spread Formula

11 Pages Posted: 18 Aug 2015

See all articles by Eulogio Yustas

Eulogio Yustas

Model Risk Internal Audit, Banco Santander; Banco Santander - Boadilla del Monte

Date Written: April 23, 2014

Abstract

So far, cross currency and basis swap spreads have been associated with liquidity and credit issues. This paper proposes a different approximation to the problem of Basis Spreads. The result of this new approximation is to find a simple formula that relates the cross currency basis spreads to market quotations of the single-currency interest rate instruments (swaps and basis swaps). Hence, from this point of view, Basis Spread should not be seen as independent market quotations.

Keywords: Discounting, Swap, Basis, Basis Swap, Valuation, Counterparty Risk, Collateral, EONIA, OIS, multiple tenors, closed form formulas

Suggested Citation

Yustas, Eulogio and Yustas, Eulogio, Comprehensive Theory of a Cross Currency Basis Spread Formula (April 23, 2014). Available at SSRN: https://ssrn.com/abstract=2645535 or http://dx.doi.org/10.2139/ssrn.2645535

Eulogio Yustas (Contact Author)

Banco Santander - Boadilla del Monte ( email )

Ciudad Financiera Grupo Santander
Avenida de Cantabria s/n
Boadilla del Monte, Madrid 28660
Spain

Model Risk Internal Audit, Banco Santander ( email )

Ciudad Financiera Grupo Santander
Avenida de Cantabria s/n
Boadilla del Monte, Madrid 28660
Spain

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