Re: [Quantlib-users] Arguments for ql.ConstNotionalCrossCurrencyBasisSwapRateHelper()

[Marcin R. <mry...@gm...>]

Hi everyone,

As already pointed out by Peter and Ioannis, the helper utilizes the fact
that, for a par instrument, the ratio of foreign vs domestic notionals is
equal to the market spot rate. Hence, they cancel each other out and the FX
spot rate is not really needed.

Nk, to make your example work for a SOFR-SONIA swap you will have to create
two proxy Ibor indices (instead of using overnight ones) with 3m period
each for SOFR and SONIA, respectively. Given that both SOFR and SONIA legs
use compounded rate averaging, they collapse to Ibor-type coupons anyway -
this property will apply to coupons that have not started accruing yet,
which for a par instrument applies to all. This should result in a GBP
curve under USD collateralization you’re looking for.

We might consider improving the helper by adding a constructor that takes
an overnight index and payment frequency as parameters.

Hope this helps.

Regards,
Marcin

On Sat, 18 May 2024 at 21:08, Ioannis Rigopoulos <qua...@de...>
wrote:

> The baseCurrencyIndex and quoteCurrencyIndex imply the frequency per each
> floating leg.
> On 5/18/2024 8:53 PM, Quant wrote:
>
> Thanks loannis, what about the payment frequency is it not required in ql.
> ConstNotionalCrossCurrencyBasisSwapRateHelper() for bootstrapping?
>
> Thanks,
> Nk
>
> On Sat, 18 May 2024 at 20:25, Ioannis Rigopoulos <qua...@de...>
> wrote:
>
>> Hi Peter and NK
>>
>> For some reason, the email I sent quite some time ago did not go through.
>> Perhaps because of the link insertion. I repeat it below:
>>
>> The spot rate is not needed. Explanation at
>> https://www.deriscope.com/products/Key_Yield_Curve_Fxb__Spot.html that
>> describes the spot rate input in the construction of a curve out of xccy
>> basis spreads.
>> In effect, any assumed spot rate cancels out due to for any given two
>> currencies SRC and TGT, the corresponding legs in a currency swap have
>> differing notionals Nˢʳᶜ and Nᵗᵍᵗ that satisfy:
>>
>> Nˢʳᶜ/Nᵗᵍᵗ = s := spot fx rate TGT/SRC
>>
>> Ioannis
>> On 5/18/2024 8:12 PM, Quant wrote:
>>
>> Hi Peter,
>>
>> So do you agree that we need to have the following additional arguments
>> in
>> ql.ConstNotionalCrossCurrencyBasisSwapRateHelper();
>>
>> 1. quote FX rate - so that 1 is used as the notional of one leg and the
>> quote FX rate is used as notional on the other leg
>>
>> 2. payment frequency - so that the number of payment frequency is known
>> for each leg during the bootstrapping process.
>>
>> Happy to get your opinion on this.
>>
>> Thanks & regards,
>> Nk
>>
>> On Sat, 18 May 2024 at 19:57, Peter Caspers <pca...@gm...>
>> wrote:
>>
>>> It does make sense, I was confused as well.
>>>
>>> I think both the domestic and foreign leg are set up with the same
>>> notional 1.0. I.e. the conversion of the foreign leg’s npv to domestic
>>> currency is done implicitly by using identical nationals. I.e. we exploit
>>> the fact that the fx spot rate is the same as the ratio of nationals of the
>>> two legs. Therefore the fx spot is not needed to set up the helper. Smart.
>>>
>>> On 18. May 2024, at 18:41, Quant <qua...@gm...> wrote:
>>>
>>> Hi Peter,
>>>
>>> No, the spot fx is not declared anywhere in the bootstrapping hence my
>>> first question was why we don’t have an argument for the quote FX rate
>>> which would be used as the implied notional. Not sure if it’s making sense.
>>>
>>> Thanks & regards,
>>> Nk
>>>
>>> On Sat, 18 May 2024 at 18:28, Peter Caspers <pca...@gm...>
>>> wrote:
>>>
>>>> I guess spot fx is somewhat implicit in the (initial) notionals of the
>>>> two legs?
>>>> Peter
>>>>
>>>> On Fri, 17 May 2024 at 03:34, Ben Watson <
>>>> ben...@ma...> wrote:
>>>> >
>>>> > cross currency basis is a spread over a floating index. We use this
>>>> to bootstrap curves. It is a direct quote, and no need for a spot FX rate.
>>>> >
>>>> > The contrast is when we imply a basis over a floating index from
>>>> forward fx pips. In this case we need spot fx.
>>>> >
>>>> > Ben
>>>> >
>>>> > On Fri, 17 May 2024, 6:16 am Quant, <qua...@gm...> wrote:
>>>> >>
>>>> >> Hi Quantlib users,
>>>> >>
>>>> >> When using ql.ConstNotionalCrossCurrencySwapRateHelper() shown
>>>> below, are we not supposed to have an argument for the quote FX rate? If
>>>> not how do we adjust for the spot FX rate when bootstrapping the basis
>>>> adjusted discount curve? Not sure if my question makes sense
>>>> >>
>>>> >>
>>>> https://rkapl123.github.io/QLAnnotatedSource/d6/d3d/class_quant_lib_1_1_const_notional_cross_currency_basis_swap_rate_helper.html
>>>> >>
>>>> >> Thanks & regards,
>>>> >> Nk
>>>> >> _______________________________________________
>>>> >> QuantLib-users mailing list
>>>> >> Qua...@li...
>>>> >> https://lists.sourceforge.net/lists/listinfo/quantlib-users
>>>> >
>>>> > _______________________________________________
>>>> > QuantLib-users mailing list
>>>> > Qua...@li...
>>>> > https://lists.sourceforge.net/lists/listinfo/quantlib-users
>>>>
>>>
>>>
>>
>> _______________________________________________
>> QuantLib-users mailing lis...@li...://lists.sourceforge.net/lists/listinfo/quantlib-users
>>
>>
>>
>> <https://www.avast.com/sig-email?utm_medium=email&utm_source=link&utm_campaign=sig-email&utm_content=emailclient>
>> Virus-free.www.avast.com
>> <https://www.avast.com/sig-email?utm_medium=email&utm_source=link&utm_campaign=sig-email&utm_content=emailclient>
>> <#m_-1964979119827994335_m_4381154520716188394_DAB4FAD8-2DD7-40BB-A1B8-4E2AA1F9FDF2>
>>
> _______________________________________________
> QuantLib-users mailing list
> Qua...@li...
> https://lists.sourceforge.net/lists/listinfo/quantlib-users
>