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A Rough Tenor-Based Risk Estimate for Cross-Currency Basis Swaps

Article Quant Q&A · Author: user19805
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Summary

The document asks how to estimate the dollar impact of a change in cross-currency basis for a portfolio of swaps hedging loans or bonds. The answer offers a rough approximation: use the book’s weighted average tenor, with each trade weighted by the notional of its non-USD leg. It describes this average tenor as a proxy for duration and therefore as an indicator of basis risk.

The estimate is explicitly limited: it assumes the trades share the same currency pair and is characterized as very approximate. It does not specify a sensitivity formula, explain how to convert the tenor proxy into a dollar change for a given basis move, or address cash-flow schedules, discounting, amortization, or differences in trade direction. The suggestion is a starting point for risk intuition, not a complete valuation or hedging method.

Key ideas

  • The suggested rough proxy is the book’s weighted average tenor.
  • The proposed weights are the notionals of the non-USD legs.
  • The answer treats average tenor as an approximate duration and risk indicator.
  • The approximation assumes all swaps use the same currency pair.
  • No full dollar sensitivity calculation or detailed valuation method is provided.

Tags

Fixed incomeForexRisk managementDerivatives pricing
Full text
# Deltas and CC Basis Swaps


# Deltas and CC Basis Swaps












How do I calculate the dollar impact of basis change for a portfolio of cross currency basis swaps which hedged loans/bonds?

I am thinking it might have something to do with delta and tenors but I am not quite sure of the concept.

Thanks

## Answer by Randor (score 1)

https://quant.stackexchange.com/a/24833

Take the weighted average tenor of your book. Weights being the notional of the non usd leg. That is very roughly your duration, which gives you your risk ! Ps i assume all the trades are on the same currency pair

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.