 Choice of Collateral Currency Updated -A market model for the benchmark pricing-Masaaki Fujii and
Akihiko Takahashi
No CARF-F-371, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo Abstract: Collateralization with daily margining and the so-called OIS-discounting have become a new standard in the post-crisis financial market. Although there appeared a large amount of literature to deal with a so-called multi-curve framework, a complete picture for a multi-currency setup with currency funding spreads, which are necessary to explain non-zero cross currency basis, can be rarely found since our initial attempts [9, 10, 11]. This note gives an extension of these works regarding a general framework of interest rates for a fully collateralized market. We provide a new formulation of the currency funding spread which is more suitable in the presence of non-zero correlation to the collateral rates. In particular, the last half of the paper is dedicated to develop a discretization of the HJM framework including stochastic collateral rates, LIBORs, foreign exchange rates as well as currency funding spreads with a fixed tenor structure, which makes it readily implementable as a traditional Market Model of interest rates. Pages: 26 pages Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf371 Access Statistics for this paper More papers in CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo Contact information at EDIRC. |
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