Anyone have a good currency swaps model? I'm trying to build one but am having trouble with my limited knowledge based on CFA 2 books. For example, the book tell us to use LIBOR to build the discount factor for fixed rates or how the payments are periodical and the same, but real life swaps have their own agreed fixed rates and payments timed to whatever the parties agree to (it is OTC after all). Anyone in the biz with some tips? It was much easier building a black scholes model...作者: ninja1024 时间: 2011-10-5 17:28
What contract are you trying to model?作者: d2rockstar 时间: 2011-10-5 17:30
I can't give all the details... what info do you need? its a swap for columbian fixed for a us floating based on libor... payments are once in 18 months and one in 24 months and thats it.作者: Walex 时间: 2011-10-5 17:32
That's good. I just needed a general idea of what you're doing. Basically, you will need two curves: 1) the US swap rate, and 2) the USDCOP FX forward curve.
To get the value of the US floating leg, take forward rates at the fixing maturities, and discount them using the spot rate at the payment maturity.
To get the value of the COP fixed leg, translate each payment into USD at the forward rate. For instance, if you will receive 2000 COP pesos in 18 month, and the forward exchange rate is 2000 COP/USD, this is equivalent to receiving $1 in 18 months. Take the PV of $1 in 18 months and repeat for all payments.
You can also use the Colombian interest rate curve to derive the USDCOP forward curve with interest rate parity. This method will have some error though; currency forwards don't always trade at levels implied by rates curves.
Anyway, I hope that helps.作者: luda002 时间: 2011-10-5 17:34
yeah I did that and my price vs the dealers price is WAY off... I think it might have something to do with the principal bein swapped and we are using different discount and exchange rates but the difference is off by a factor of 3 so I'm not sure if I can attribute the difference to different inputs. I might be missin something entirely...
