Has anyone tried this and compared it to the standard approach over a wide range of products in a portfolio, to assess its practicality? In particular I’m wondering about its feasibility as being done at portfolio level, it may lead to regressions in a large number of dimensions.

]]>We do not know, however, how widespread this methodology is, and what companies are doing when the CSA is not only allowing cash but also securities such as bonds, possibly in several currencies. Furthermore, some CSAs appear to have posting conditions depending on the credit quality, which makes things even more complex.

We’d be interested to hear any experiences and opinions on the methodologies employed out there for the CSA types above.

]]>

One may decide to value all the cash-flows only with yield curves and simply bootstrap the cross-currency curve under this assumption. But in principle there should be a quanto in the pricing of such swaps, and I’d expect to need a hybrid FX-IR model to calculate it.

Has somebody seen that done somewhere, or is this issue always handled by a simple quanto-less bootstrap?

]]>Now I get a pretty good match against Monte-Carlo in the non-correlated case, but things get not so good in the correlated case. And the problem here is that I’m trying to match a complicated and approximated closed-form (only exact for 0 correlation), to a complicated Monte-Carlo with problems reported at 0. Indeed, the FSABR paper explains that a simple Euler scheme can go quite wrong at 0, and that’s what I’ve been using in my tests. So, it’s difficult to say if the mismatches I’m seeing are due to a mistake in the implementation of the correlation map or if it’s the Monte-Carlo that is not accurate enough.

A few questions to the readers:

- Has somebody tried the above and seen similar problems as mine (or other problems)?
- Has somebody tried to compare their implementation against Numerix’s?
- Has somebody used Numerix’s FSABR and how good is it?
- Has somebody implemented the other models suggested by Antonov, i.e. the family of the Mixture SABR?