Valuation models

Dual currency bonds

Coupons discounted on the coupon currency's curve and the principal on its own, converted at spot, with the credit spread solved from a price, the FX forward and the breakeven rate.

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Methodology

Conventions

  • Coupons in the bond's currency, principal in another, each discounted on its own curve plus a credit spread.
  • The principal is converted at today's spot; the FX forward and breakeven rate are shown.

References

  • Fabozzi, The Handbook of Fixed Income Securities

Formulas

Value
V = Σ cNτᵢ P_d(tᵢ) e^(−s tᵢ) + M P_f(T) e^(−s T) S₀
FX forward
F_T = S₀ P_f(T) / P_d(T)