Onshore/Offshore Curve Namespacing

Summary
Detail
See also

Summary

A distinct form of curve multiplicity applies to onshore-restricted currencies, where jurisdiction — not tenor — drives the split: the same nominal currency (e.g. USD) requires several parallel discount curves selected by booking location. This is piecewise in a different sense from multi-curve construction, which splits by role (funding vs. projection) within one jurisdiction; here the same role (discounting) is split by where the trade is booked. The underlying pseudo currency code mechanism is FX/reference-data infrastructure shared with vol surfaces and spot; this note covers only its consequence for curves.

Detail

Offshore

A pseudo-currency code (e.g. KRI for onshore-restricted KRW) carries its own curve, typically backed out from a publicly available forward term structure (e.g. KFTC 18 for KRW). Vols use the fake currency pairing (e.g. USDKRI, see Deliverability and non-deliverable instruments), but the regular offshore USD discount curve still funds the USD leg.

Onshore

Because onshore USD transactions are tightly controlled, a separate pseudo-USD discount curve reflects onshore USD interest rates — differing by country (Brazil vs. Korea, etc.). Distinct pseudo currencies are coded as needed (e.g. USI, USK), so an onshore deal in Korea uses a USI=/=USK funding curve and USIKRW-style vols/FX spot.

Alternative: namespacing instead of pseudo currencies

Rather than minting a pseudo-currency per onshore market, curves can instead be namespaced by Onshore/Offshore — a single "USD curve, Onshore-Korea namespace" associated with trades booked in Korea, vs. a "USD curve, Offshore namespace" for trades booked elsewhere. A term-structure vol source (e.g. KFTC 18) is still required either way.

Governing constraint

An onshore entity must still trade its local currency as deliverable, while entities outside that country trading the same currency must not — the curve/namespace split keeps pricing and deliverability rules consistent with this jurisdictional boundary.

USD (Offshore)          ──────────────► general USD discount curve
USD (Onshore, Korea)    ─────────────► USI/USK pseudo-currency curve
                                         (or "Onshore-Korea" namespace)
USD (Onshore, Brazil)   ─────────────► distinct pseudo-currency curve
                                         (or "Onshore-Brazil" namespace)