2017/03/02 by Jorge Inigo, Inigo, Jorge
Economics, Econometrics and Finance · #Economic theories and models #FOS: Economics and business #Pricing of Securities (q-fin.PR) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.1703.00923
openalex publication_date 2017/03/02 · openalex created_date 2022/10/01 · openalex updated_date 2026/07/28
The financial crisis of 2007/08 caused catastrophic consequences and brought\na bunch of changes around the world. Interest rates that were known to follow\nor behave similarly of each other diverged. Furthermore, the regulation and in\nparticular the counterparty credit risk began to to be considered and\nquantified. Consequently, pre-crisis models are no longer valid. Indeed, this\nwork sets the basis to define a valid model that considers the post-crisis\nworld assumptions for the Mexican swap market. The model used in this work was\nthe proposed by Fujii, Shimada and Takahashi in [Fujii et. al., 2010b]. This\nmodel allow us to value interest rate derivatives and future cash flows with\nthe existence of a collateral agreement (with a collateral currency). In this\ndocument we build the discounting and projection curves for MXN interest rate\nderivatives considering the collateral currencies: USD, EUR and MXN. Also, we\npresent the pricing when the derivative is uncollateralized. Finally, we show\nthe effect of the cross-currency swaps when valuing through different\ncollateral currencies.\n