In this paper authors Alexander Antonov and Han Lee present a discrete framework on event time grid for a cross-currency term structure modelling. The discrete model is generic, in the sense that it can link together any single currency model to form a multi-factor cross currency model, provided that it is known (analytically or numerically) in a rolling-spot measure.

As an example we present a construction of a Markov-Functional model in this framework. For the discrete cross-currency extension, transitional probabilities between adjacent time slices for the FX process can be explicitly calculated if the respective underlying interest rate models have known transitional probabilities for their states.

A calibration of the discrete cross-currency model including FX volatility is also discussed in the paper. Namely, we present an analytical FX-rate volatility approximation and a construction of its efficient numerical solution.

Download Numerix Research Paper

Complete the form below to download this complimentary research paper.

Select Form: 

Form #5: Research

Keep me informed of future research from Numerix:

Sign me up to receive "Thinking Derivatively" monthly newsletter by Numerix:

* Required fields
conference presentation

2016 Quant of the Year Lecture Series - London - April 28, 2016

conference presentation

2016 Quant of the Year Lecture Series - London - April 28, 2016

newsletter issue - Jun 4, 2018

Thinking Derivatively - June 2018 Issue

in the news - May 9, 2018

OpenFin Expands Beyond Front Office

in the news - May 9, 2018

Numerix Deploys Oneview on OpenFin's Operating System

newsletter issue - May 2, 2018

Thinking Derivatively - May 2018 Issue

newsletter issue - Apr 11, 2018

Thinking Derivatively - April 2018 Issue

newsletter issue - Mar 19, 2018

Derivative Insights & Innovations - March 2018 Issue

newsletter issue - Feb 7, 2018

Derivative Insights & Innovations - February 2018 Issue

newsletter issue - Jan 11, 2018

Derivative Insights & Innovations - January 2018 Issue

newsletter issue - Dec 7, 2017

Derivative Insights & Innovations - December 2017 Issue

newsletter issue - Nov 9, 2017

Derivative Insights & Innovations - November 2017 Issue