Valuation of Multi-currency CSA’s

A Multi-currency Credit Support Annex (CSA) is a contract used to document collateral agreements of a derivative contract between two parties where it is allowed to post the collateral in other currencies than the base currency. In this thesis, I construct a blended Cheapest-to-Deliver (CTD) framework in order to value those type of derivatives. I apply this new framework to a portfolio of Interest Rate Swaps (IRS) and compare it with the CTD method of Fujii & Takahashi (2011) and the multi- and single-curve framework of Fujii et al. (2010a). Key findings are that: (i) choosing the cheapest collateral largely increases the present value of the IRS portfolio when the portfolio holder is the collateral payer, (ii) the impact of the considered CTD methods depends on the knowledge of the counterparty (other party that participates in the swap contract) and the type of IRS and (iii) the single-curve framework highly mis-prices the IRS portfolio relative to the multicurve framework.