Valuation models

FX swaps, NDFs and average forwards

Near and far legs on covered interest parity with fair swap points, NDFs settled in either currency, and the expected average of the fixings against the contract rate.

Inputs

Results

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Methodology

Conventions

  • Each leg is an FX forward on covered interest parity, discounted on the quote currency's curve.
  • NDFs settle the fixing against the contract rate in one currency; in the base, 1/S has mean 1/F.
  • Average rate forwards pay the average of the fixings: those done, and the forwards to the rest.

References

  • Hull, Options, Futures, and Other Derivatives, ch. 5
  • Clark, Foreign Exchange Option Pricing

Formulas

Forward
F(t) = S D_base(t) / D_quote(t)
FX swap
V = N [F(Tn) − Kn] D(Tn) − N [F(Tf) − Kf] D(Tf)
NDF (base)
V = N (1 − K/F) D_base(T)