Hend Abuenein
Active Member
Hello David,
When evaluating currency swaps as a portfolio of forward contracts, I saw that both in Schweser notes and Hull's book they net the cash flow of every year (in one currency) then they discount the net to its PV for every year , when all other methodologies of evaluating derivatives and assets tell us to discount cash flows for every leg of contract (do the exchange math for a single currency), sum up PV's then net the sums to obtain the value of the swap.
Why is this particular valuation being done this way?
The two methodologies render entirely different answers.
Thanks
Hend
When evaluating currency swaps as a portfolio of forward contracts, I saw that both in Schweser notes and Hull's book they net the cash flow of every year (in one currency) then they discount the net to its PV for every year , when all other methodologies of evaluating derivatives and assets tell us to discount cash flows for every leg of contract (do the exchange math for a single currency), sum up PV's then net the sums to obtain the value of the swap.
Why is this particular valuation being done this way?
The two methodologies render entirely different answers.
Thanks
Hend