Cross-currency contracts

A cross-currency contract exchanges payments in two currencies. Valuation requires curves for projecting each leg, discount curves consistent with the collateral agreement, and an FX rate for converting between currencies. Cross-currency market quotes help calibrate the collateral-adjusted curves.

For a USD-collateralized USD/CLP swap, for example, SOFR can provide USD projection and discounting, ICP can project CLP coupons, and a separate USD-collateralized CLP curve discounts those payments.

Swaps and collateral curves

Fixed–floating and floating–floating cross-currency builders create two currency legs with initial/final principal exchanges. Notionals can be chosen to be spot-equivalent at inception: for USD→CLP spot \(S\) quoted in CLP per USD, CLP principal is USD principal times \(S\). State this orientation explicitly when supplying spot or interpreting results.

A USD CSA policy selects SOFR for USD payments and Collateral(CLP, USD) for CLP payments. The latter is not the local CLP ICP projection curve. Calibration can use FX forward quotes and cross-currency swaps, with an FX store supplying consistent inception notionals.

For a CLP payment converted to USD under that policy, the implemented discount-and-convert contribution has the form

\[ PV_{\rm USD}=C_{\rm CLP}\,S_{\rm CLP\to USD} \,P_{\rm CLP|USD}(0,T). \]

The pricer’s actual currency rule must be checked for each product; this is not a universal context-level reporting conversion. Generic DCF payment filtering and zero-based FairRate(index) leg selection described in Swaps apply.

Risk follows the construction graph. USD projection/discounting reaches SOFR quotes; CLP coupon projection reaches ICP; collateral discounting reaches cross-currency and FX-forward calibration inputs. Spot risk also requires recorded spot inputs. The existence of a spot store alone does not guarantee that every particular sensitivity report includes all spot dependencies.

FX forwards: the implemented convention

MakeFxForward creates a future currency exchange, with optional non-deliverable settlement configuration. FxForwardPricer requires an explicit discount policy and supports value, fair rate and sensitivities. Its current implementation computes

\[ F_{\rm impl}=S\frac{P_{\rm quote}(0,T)}{P_{\rm base}(0,T)},\qquad V=N\,s\,(F_{\rm impl}-K)P_{\rm quote}(0,T) \]

when a contractual forward price is present.

For spot expressed as quote currency per base currency, this implementation uses the reciprocal of the usual covered-interest-parity discount ratio. The FX-option pricer uses the usual base/quote ratio. This discrepancy affects comparisons between the two pricers and must be accounted for when reproducing forward values or testing option parity.

An outright forward rate and forward points are different calibration strategies. AnchorOutrightPrice uses the outright quote; AnchorForwardPoints uses the configured points interpretation. Their market identities and native implementation must match the feed’s units. Replicating a vendor forward requires validating orientation, quote units, collateral curves and settlement behavior together.