risk free curve

[d.koutsomito]

Hi all,

The question I have is about how one can obtain the risk free curve for country X?

I am aware that many calculate the average spread of highly rated corporate bonds in this country over government bonds and shift downwards the X Currency swap curve by this average spread.
I have also heard of cases of different risk free curves, one for contracts with collateral and one for contract without, but I am not well aware of this approach.
Therefore, I was wondering which alternatives there exist and which is the best practice to calculate the risk free curve.

Feel free to suggest any paper on this topic you consider important.

Thanks.
D

 

[MarekB]

Hi, I'm not an expert on that field, but I would suggest to construct risk free curve with OIS rates. If there is no liquid market for OIS, I would use regular rates/instruments (like LIBOR or deposits + FRAs + IRS) adjusted to basis spread and/or swap points.

Here’s some paper dealing with curve construction topic:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1440633


Regards

 

[d.koutsomito]

Hi, I'm not an expert on that field, but I would suggest to construct risk free curve with OIS rates. If there is no liquid market for OIS, I would use regular rates/instruments (like LIBOR or deposits + FRAs + IRS) adjusted to basis spread and/or swap points.

Here’s some paper dealing with curve construction topic:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1440633


Regards

Hi MarekB,

Thanks for your reply.
I had a quick look at the paper and looks really useful.

Best
D