Building a QuantLib Pricer for Callable Cross-Currency Swaps

# Does QuantLib support Bermudan-callable cross-currency swaps with a joint IR/FX model?


# Does QuantLib support Bermudan-callable cross-currency swaps with a joint IR/FX model?












I am looking to price a Bermudan-callable EUR/USD cross-currency interest rate swap in QuantLib.

Assume a three-factor model with:

one Hull-White model for USD rates, one Hull-White model for EUR rates, a Black-Scholes FX process, correlations between both rate factors and FX, the appropriate quanto/measure-change drift adjustment.

Pricing would require Monte Carlo with Longstaff-Schwartz regression for the early-exercise decision.

I understand the theoretical pricing approach. My question is specifically about QuantLib support.

Does QuantLib provide a joint multi-currency IR/FX model and Monte Carlo framework suitable for this?

I have implemented single currency Bermudan swaption and it prices to market nicely https://quant.tglauner.com. You can login as demo/demo.

## Answer by XXXXXXX (score 4)

https://quant.stackexchange.com/a/85777

Short answer: No, not as a ready-made QuantLib framework.

QuantLib has many of the individual building blocks:

- Hull-White short-rate models;

- Black-Scholes/Garman-Kohlhagen-style FX processes;

- correlated multi-dimensional path generation;

- Longstaff-Schwartz-style machinery for American/Bermudan exercise.

However, it does not provide an integrated multi-currency IR/FX model that automatically handles:

- the choice of pricing measure/numeraire;

- joint consistency of the USD short rate, EUR short rate and FX process under that measure;

- the quanto/measure-change drift adjustments;

- the early-exercise regression needed for a Bermudan-callable cross-currency swap.

In particular, simply simulating two Hull-White short-rate processes and an FX process with correlations is not enough. The processes must be expressed consistently under a single pricing measure, e.g. the USD money-market-account measure if pricing in USD. Under that measure, the FX drift must reflect the domestic/foreign short-rate differential, and the foreign short-rate process generally requires a quanto/convexity drift adjustment due to its correlation with FX. QuantLib does not automatically wire this together for a cross-currency callable swap.

So the practical answer is: QuantLib can be used as a toolkit for building such a pricer, but you would need to implement the joint stochastic process under the chosen measure, the correct drift adjustments, the swap cash-flow mapping, and the Longstaff-Schwartz continuation-value regression yourself. It is not an out-of-the-box QuantLib feature.