I have a question about Cross Currency (XCCY) Swap pricing in the real world.

There are plenty of papers going nicely into detail, how XCCY Basis Swaps and XCCY Constant Notional Swaps work. Also the general bootstrapping approach using Basis Swap Quotes is simple and straightforward.

My question is: How are Constant Notional Swaps (usually Float/Float) priced in the real world?

Market quotes are usually based on Float/Float Resettable trades. Hence, constructing a curve from those does not match the features of Constant Notionals. Does the market - in reality - include some kind of adjustment into the prices of CN? If so, how can such an adjustment be approximated? Or does the market simply widen the bid ask spread for such trades, knowing that the back hedge will be done with a (not perfectly matching) float/float resettable and hence price this in?!

In theory, one can derive a convexity adjustment for CN. However, due to lack of high quality long term market data (e.g. 50Y implied volatility) I have the feeling that this theoretical convexity adjustment is useless in the real world and not used.

Thanks to anyone shining light on this topic! Best, Kevin


Your Answer


Browse other questions tagged or ask your own question.