# OIS fixed rate compunding criteria

I have the following doubt: How should the OIS fixed rate be considered in computing principal+interests at the maturity of the swap? I mean, if i.e. the swap lasts 4 day (without w.e. in the middle), and the day count convention is ACT/365, I've found both: P*(1+OIS*4/365) (here) and P*(1+OIS/365)^4 (here)

Thanks!

Depends on which OIS you are referring to. For EUR OIS Swaps, the EONIA Swap rate is calculated via the usual compounding formula (notice that in the example below, the rate $$r_i$$ is updated every night): Example is shown here: For USD OIS Swaps, the link to Investopedia that you shared is correct: it is pretty much the same formula as for the EUR swap rate (compounded rates, updated on an overnight basis).

• Thanks Jan Stuller for your prompt reply and clear reply. Actually my doubt was on how to calculate the fixed leg of the swap. In your example, following Investopedia, it would be: €500*(1+0.0385/360)^7 = €500.37442567 instead of €500*(1+0.0385*7/360) = €500.37430556 as explained in the other website (but this one referring to the sterling market: may be they adopt a different compounding criteria?) Thanks again. – The Fed Jun 15 '20 at 13:01
• @TheFed: welcome. Every currency OIS swap might have a slightly different way of computation. If my answer is satisfactory to your question, pls click in the tick mark next to my answer so that your question can be marked as "answered". – Jan Stuller Jun 15 '20 at 14:07
• I have updated the post. The example is found here, emmi-benchmarks.eu/assets/files/… it shows the calculation of the fixed as well as the variable rate, and the net payment. The 'other web site' is right and Investopedia should not be trusted. – noob2 Jun 16 '20 at 10:57
• @noob2: thanks. Out of curiosity, why should Investopedia not be trusted? (I am completely neutral here, neither a fan nor an enemy of Investopedia). – Jan Stuller Jun 16 '20 at 14:43
• @JanStuller Investopedia contains too many examples of content that's factually incorrect and opinions that are beyond ridiculous. – Dimitri Vulis Jun 16 '20 at 15:02