Discounting Consistently with Collateral Posting
M Chibane, YC Huang, JP Selvaraj - Available at SSRN 2084452, 2012 - papers.ssrn.com
M Chibane, YC Huang, JP Selvaraj
Available at SSRN 2084452, 2012•papers.ssrn.comIn this paper we investigate the impact of collateral posting on derivative prices. We build a
complete discounting framework from vanilla swap pricing to single currency exotic option
pricing. We show how to extract initial discount and forecast curves from the market of OIS
and IR Vanilla swaps. We extend our considerations to the case of collateralisation in a
currency other than the transaction denomination currency.
complete discounting framework from vanilla swap pricing to single currency exotic option
pricing. We show how to extract initial discount and forecast curves from the market of OIS
and IR Vanilla swaps. We extend our considerations to the case of collateralisation in a
currency other than the transaction denomination currency.
Abstract
In this paper we investigate the impact of collateral posting on derivative prices. We build a complete discounting framework from vanilla swap pricing to single currency exotic option pricing. We show how to extract initial discount and forecast curves from the market of OIS and IR Vanilla swaps. We extend our considerations to the case of collateralisation in a currency other than the transaction denomination currency.
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