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Yield Curve Construction after Crisis

Jaroslav Baran and Jiří Witzany ()

Politická ekonomie, 2014, vol. 2014, issue 1, 67-99

Abstract: Market value of derivatives after crisis requires discounting with interest rates that take into account the credit risk of the involved counterparties of the trade. The increase of credit risk is evidenced by the presence of basis swap spreads. Using one curve to both estimating the forward rates and discounting future cash flows is not plausible given the prerequisite of arbitrage free market. The aim of this paper is to derive discount curves which are consistent with market quotes. In the concluding part, we estimate CZK OIS rates, which can be then used to discount derivatives denominated in CZK and collateralized with CZK cash.

Keywords: discount factor; swap spreads; overnight indexed swap; basis swap; cross-currency swap; collateral (search for similar items in EconPapers)
JEL-codes: D53 G01 (search for similar items in EconPapers)
Date: 2014
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