A General Framework for the Benchmark pricing in a Fully Collateralized Market

Masaaki Fujii and Akihiko Takahashi

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Abstract: Collateralization with daily margining has become a new standard in the post-crisis market. Although there appeared vast literature on a so-called multi-curve framework, a complete picture of a multi-currency setup with cross-currency basis can be rarely found since our initial attempts. This work gives its extension regarding a general framework of interest rates in a fully collateralized market. It gives a new formulation of the currency funding spread which is better suited for the general dependence. In the last half, it develops a discretization of the HJM framework with a fixed tenor structure, which makes it implementable as a traditional Market Model.

Date: 2015-08, Revised 2015-09
New Economics Papers: this item is included in nep-opm
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