FX Linked Structures

In SDX Interest Rates you can price an IR instrument together with an FX option. That is, in a single page you can price an IR instrument with a supported FX option.

The purpose of this feature is to provide the user with the ability to structure an IR instrument with an embedded FX option payout. By combining two asset classes, you can reduce the hedging costs. For example, you can use the premium of one of the options to offset the premium of the other.

Once you have entered the two options SDX Interest Rates calculates the results for the two instruments together. This lets you then use the Solver functionality to experiment with the results.

Specifically, you can price the following:

Currency linked swap

Currency linked swaption

Currency linked cap/floor

Cross currency linked swap

Currency linked quanto swap

The FX options that can be priced along each of the IR instruments listed above include:

Vanilla s

Barrier s

Binary s

Pricing FX Linked Structures in SDX Interest Rates

The pricing page for an FX linked structure is divided in half—on the left side you specify the interest rate instrument and on the right side the FX instrument.

For more information on specifying the instruments, consult the relevant sections in the SDX Interest Rates or SDX Foreign Exchange online help.