Clean Valuation Framework for the USD Silo -An implication for the forthcoming Standard Credit Support Annex (SCSA)-

Akihiko Takahashi Masaaki Fujii
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Akihiko Takahashi Masaaki Fujii: Faculty of Economics, University of Tokyo

No CARF-F-260, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: In the forthcoming ISDA Standard Credit Support Annex (SCSA), the trades denominated in non-G5 currencies as well as those include multiple currencies are expected to be allocated to the USD silo, where the contracts are collateralized by USD cash, or a different currency with an appropriate interest rate overlay to achieve the same economic effects. In this paper, we have presented a simple generic valuation framework for the clean price under the USD silo with the the detailed procedures for the initial term structure construction. We have also shown that Cross Currency Swap (CCS) basis spread can be expressed as a difference between two swap rates.

Pages: 16 pages
Date: 2011-12
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