Curve Selection for Uncollateralized Cross-Currency Swap Valuation

Summary

The document asks how to value an uncollateralized cross-currency swap exchanging EURIBOR six-month payments for JIBAR three-month payments. It raises two linked curve questions: which curves should discount the cash flows, and which curves should generate forward rates for each floating leg.

The questioner suggests using a euro six-month swap curve together with a JIBAR-versus-euro basis discount curve, but notes that the latter may not be readily available from market data providers. They ask whether it can be inferred from JIBAR-versus-US-dollar and euro-versus-US-dollar basis curves. No answer, valuation framework, market quotes, or numerical example is included, so the document identifies a curve-construction problem rather than establishing that the proposed curve combination or inference is valid. The appropriate setup is left unresolved.

Key ideas

• The swap exchanges floating payments tied to EURIBOR six-month and JIBAR three-month rates.
• The document distinguishes discount curves from curves used to infer forward rates.
• It raises the possibility of deriving a JIBAR-versus-euro basis curve from two basis curves against the US dollar.
• No valuation method or answer is provided, leaving the curve choices unresolved.

Tags

# Uncollateralized cross currency swap valuation


# Uncollateralized cross currency swap valuation












I want to value an uncollateralized cross-currency swap to exchange EURIBOR 6M for JIBAR 3M (Johannesburg Interbank Average Rate).

I have a few questions:

- What discount curves should I use?

- From which curve should I infer forward rates for each leg?

Thanks for your help.

For the first question, I think I should be using the EURO 6M swap curve and a basis discount curve for JIBAR vs EUR. However, such basis curves do not necessarily exist on Bloomberg or other financial data providers.

Is it correct to imply the basis curve JIBAR vs EUR from the two following basis curves: JIBAR vs USD and EUR vs USD?

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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