A generalized pricing and hedging framework for multi-currency fixed income desks

It is well known that traded foreign exchange forwards and cross currency swaps (CCS) cannot be priced applying cash and carry arguments. This paper proposes a generalized multi-currency pricing and hedging framework that allows the flexibility of choosing the perspective from which funding is managed for each currency. When cross currency basis spreads collapse to zero, this method converges to the well established single currency setting in which each leg is funded in its own currency. A worked example tests the quality of the method.