Building an Emerging-Market NDS Curve for Cross-Currency Discounting

Summary

The document outlines a curve-construction problem for non-deliverable swaps in emerging-market currencies. The proposed relationship combines a SOFR-versus-local-currency-plus-spread swap with a local-currency-plus-spread-versus-fixed-rate swap. Together, these are intended to form a synthetic SOFR-versus-local-fixed swap and connect the local forecasting curve to a SOFR discount curve for local cash flows.

The author can bootstrap SOFR, local-currency, and cross-currency curves separately, but asks how to assemble them in QuantLib. No implementation, calibration results, or answer is provided. The discussion therefore serves as a conceptual setup rather than a tested recipe. Its assumptions include OIS curves and the suggestion that one emerging-market example may generalize; actual conventions, collateral terms, market quotes, and currency-specific details could affect how the curves should be linked and used.

Key ideas

• A synthetic swap can be viewed as the combination of two swaps linking SOFR, local floating rates, and local fixed rates.
• The intended curve structure connects local-currency forecasting with SOFR discounting of local cash flows.
• The author reports bootstrapping SOFR, local-currency, and cross-currency curves separately but not combining them in QuantLib.
• The document poses the implementation question without providing an answer or validating the proposed relationship.

Tags

# Quantlib - NDS Curve bootstrapping and pricing


# Quantlib - NDS Curve bootstrapping and pricing












I am in the process of bootstrapping an NDS curve for EM markets (I assume one example +/- fits all). I am able to bootstrap and SOFR curve Local CCY curve and a XCCY curve, I do struggle to put it together into one structure to discount my LocalCCY cash flows in SOFR terms.

From what I read I understand the following needs to be achieved (assuming all are OIS curves)

Swap 1: Receive SOFR vs Pay LocalCCY + Spd

Swap 2: Receive LocalCCY + Spd vs Pay LocalCCY Fixed Rate

Synthetic Swap: Receive SOFR vs Pay LocalCCY Fixed Rate

And the relationship above should provide the bridge between Forecast Curve and Discount Curve in different ccy's.

I struggle to understand how to implement the following in Quantlib, any example I came across is using a single ccy dual-curve bootstrap (OIS-SOFR).

I have looked into other threads with NDS questions in them but it seems this was never fully answered.

Thank you!

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