Choosing Market-Rate Shocks for Cross-Currency Swap DV01

Summary

The document raises a risk-measurement question about calculating DV01 for a USD–KRW cross-currency swap. It describes building a USD discount curve so observable USD interest-rate swaps have zero present value, and a KRW curve so observable cross-currency swaps have zero present value. The author reports being able to calculate DV01 for single-currency swaps but asks which market inputs should be shifted for the cross-currency instrument.

A second question concerns curve construction from market instruments quoted in FX rates rather than interest rates: should the FX quote be converted to an equivalent rate and shocked? The document contains no answer, valuation formula, or worked example, so it does not resolve the appropriate risk definition or bump methodology. It identifies that the result depends on which curve-building market inputs are shocked and how FX-linked quotes enter the calibration. Readers would need additional instrument and curve conventions to determine a concrete calculation.

Key ideas

• The question concerns DV01 measurement for a USD–KRW cross-currency swap.
• The described setup uses separate USD and KRW discount curves calibrated to market instruments.
• The author asks which curve inputs should be shifted to calculate swap DV01.
• The document also asks how to shock curve inputs quoted as FX rates.
• No answer or calculation method is supplied.

Tags

# DV01 of Cross Currency Swap


# DV01 of Cross Currency Swap












I'm trying to calculate DV01 of USD - KRW cross currency swap. Curve building process for swap was as following:

- Generate USD discount curve which makes PV of market observable USD IRS become zero (Curve #490 in Bloomberg ICVS)

- Generate KRW discount curve which makes PV of market observable USD - KRW CRS become zero (Curve #58 in Bloomberg ICVS)

I understand that DV01 is calculated by shifting the market rate, and obtained proper values for single currency IRS. My question is:

- Which rates should be shifted in cross currency swap? (Either the rates used for building USD discount curve or rates used for building KRW discount curve?)

- What if market instruments used for building curve is not quoted by interest rates, but FX rate? Should I convert this FX rate to equivalent interest rate and shift it?

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