Questions tagged [ois-discounting]
The ois-discounting tag has no usage guidance.
61
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OIS floating-floating cross-currency basis swap
I'm trying to understand whether notional resets on a floating-floating cross-currency basis swap play a role or not when the coupon payments are SOFR-based (with no spread) and they are discounted ...
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138
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DV01 formula for an interest rate swap using OIS discounting
I am looking for a formula / approximation to calculate the PV impact of shifting the par swap rate of an interest rate swap in the multicurve setting, e.g. of a swap on 6m LIBOR with OIS discounting.
...
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1
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Why should the Discount Curve be risk-free?
I have read up about the discount curve that is being used to value securities. The multi-curve methodology for valuing derivatives was mainly adopted because LIBOR was no longer seen as a proxy for ...
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3
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1
answer
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Bootstrapping discount and forward curve (using ESRA) and price a vanilla swap
I am just starting to use Quantlib, and want to try and replicate the SWPM-functionality in Bloomberg, and price a vanilla 5Y EUR OIS. Below is the overall swap data used in BBG:
Overall settings
...
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2
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How to account for the credit spread ( e.g. LIBOR + 2%) when using the Multicurve Methodology in valuing a Swap
When valuing an Interest rate swap, counterparties will typically issue the contract at a Libor + credit premium, e.g. Libor +2%. When valuing a swap, we require a LIBOR forward curve and Discounting ...
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3
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Convexity Adjustment of Daily Compounded Swap under Hull-White Model
I am working on a problem that deals OIS daily compounded swap under Hull-White 1-factor model. I am struggling with pricing the floating leg, on a delayed payment date:
$E^{T^p}_t[\prod_{i=0}^{n-1} (...
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1
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137
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Why do we theoretically have to take cross currency basis volatility into account when constructing Cheapest To Deliver (CTD) discount curves?
Let's take a collateralized USD IRS where there is optionality in collateral currency. My understanding is that it is standard practice to compute forward XXX/USD OIS basis curves for all currencies ...
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PV and Risk on a RFR cross currency swap
When pricing a XCCY basis on RFR (assuming USD CSA so under SOFR), for example ESTER versus SOFR (USD leg resettable) : I observed that the PV / Risk and also FX Delta are close to zero.
I have been ...
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2
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665
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Is SOFR to replace LIBOR or Fed Fund Rate or both
I am a bit confused on what is going on regarding the new benchmark rate SOFR. My understanding is that SOFR is to replace Libor. However, I also get information on Fed fund OIS discounting is ...
- 664
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1
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895
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What is Overnight index swaps (OIS) curve
Overnight index swaps (OIS) curves became the market standard for discounting collateralised cashflows.
However I failed to understand what is the meaning of the ...
- 593
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181
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Cheapest-to-deliver (CTD) discount curve II
This is a follow up question on this thread
I have come across the following relationship in a CTD curve bootstrapping routine:
$$\frac{DF_{XXX}^{CSA.EUR}}{DF_{EUR}^{CSA.EUR}} = \frac{DF_{XXX}^{CSA....
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1
answer
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Current liquidity of USD OIS-SOFR Swaps
We have now moved to discounting using OIS-SOFR swaps on cleared products and SOFR products in general have picked up in liquidity since last time this question was asked. I'd therefore like to ...
- 4,941
2
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1
answer
950
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Libor transition: Building SOFR discount curve
As I understand that after 2023 the Libor will be discontinued and OI rates like SOFR will ...
- 347
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2
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FX Forwards collateral and discounting
What is the market convention for discounting the future cash flows of FX forwards? In particular, I would be interested to know what discounting curves are used for both collateralised and not ...
- 341
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0
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218
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Switching from EONIA to ESTR for CSA discounting
In practice, when bilateral counterparties switch from OIS to ESTR discounting, the party which sees a fall in the fair value of the CSA contract gets compensated for the decrease by the other party (...
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1
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Constructing zero-curve for discounting from Coupon OIS Swaps
There are some questions and answers on this site which touch upon this topic, but none actually show step-by-step on how to bootstrap a coupon OIS Swap curve to construct a zero-curve for discounting....
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2
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Replacing USD OIS discounting based on FED Funds Rate with SOFR discounting
Slightly related to my other question (The exact mechanics of USD OIS Swaps: replacement of USD Libor by SOFR) but nonetheless, this is a separate topic:
US banks fund themselves via EFFR (Effective ...
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The exact mechanics of USD OIS Swaps: SOFR, EFFR & Libor cessation
EDIT 2020-11-17:
thank you to @user42108 for the link to OpenGamma conventions PDF in his answer below. The PDF is comprehensive and explains the mechanics of USD OIS Swaps based on Effective Federal ...
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2
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How to find OIS discounting factors from OIS swap rates. Please explain with example
Suppose I have the following OIS Swap rates:
1 year OIS Swap: 0.36%
2 year OIS Swap: 0.37%
3 year OIS Swap: 0.38%
4 year OIS Swap: 0.40%
From these, how do I get the OIS Discounting factors for ...
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1
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323
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How to do simultaneous dual curve bootstrapping?
I wish to understand how dual curve bootstrapping is done?
Lets say we want to bootstrap FF OIS curve and Libor 3 month fwd curve simultaneously. Lets also assume we don't LIBOR-OIS basis swap rates ...
0
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1
answer
852
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Interest Rate Swap Delta ladder, under OIS Discounting
I've been looking on some information when it comes to vanilla Interest Rate Swaps, and building delta ladders under a multicurve environment. IR Swaps - Curve sensitivity at maturity node, this ...
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1
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453
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Proper Method for pricing Interest rate swaps using dual curves
I am aware that under the dual curve method for pricing standard collateralized fixed floating interest rate swaps, that first a discounting curve should be constructed e.g. OIS Discounting curve, as ...
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2
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367
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Extrapolation between today and the spot date curve building
I'm trying to build my libor curve using (Deposit, FRAs and Swap) instruments with the goal that my curve match the murex curve, my parameters are :
My today date is : 23/10/2019
Start of my deposit ...
- 406
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1
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731
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Why is it desirable to receive fixed on a zero coupon swap, and undesirable to pay fixed on a zero coupon swap?
In most established rates markets, swaps are discounted using risk-free reference rates, such as Sonia in the GBP market and Eonia in the EUR market, as opposed to Libor.
Because of the way zero-...
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2
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What is the difference between a cleared interest rate swap and a OTC interest rate swap with collateral in theory
I understand the aspect that central clearing reduced counterparty risks. From the valuation side, am I right that cash flows for both trades will be discounted at the OIS rate?
The party that holds ...
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1
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276
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Recommended Instruments (and sources) for Constructing Money Market Yield Curves
What instruments are the current industry recommendations for constructing money-market yield curves in some major currencies?
The switch after the crisis to multi-curve methods is well documented on ...
- 665
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0
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159
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A crash course in pricing
I need to refresh all the pricing theory.
Is there anything like a crash course with practical and intuitive explanations?
I will provide any further information.
I am a mathematical engineer. I am ...
- 57
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111
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When a bank enters a swap with a counterparty, when does it decide to use a OIS curve as its CSA Term, versus a counterparty specific "CSA Curve"?
What determines whether a swap should be discounted against a standard OIS curve VS a 'custom' CSA curve specific to the swap's counterparty? (such custom curves are marked as spreads to some base ...
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Libor Market Model Implementation
I'm trying to implement an LMM-MultiCurve for caplet pricing following the analytical formula mentioned in this article (pg 20):
https://www.researchgate.net/publication/...
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1
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525
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ESTER replacement for EONIA/EURIBOR
Does anybody know what impact the replacement of EONIA with ESTER ( Euro Short TErm Rate ) will have on discounting existing or new derivatives once EONIA will be restricted as of Jan 2020? I'm ...
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Dual Curve Bootstrapping - When to OIS discount?
I am a new quant and I am trying to understand some of the specifics of dual curve bootstrapping. For concreteness, suppose I want to build a Libor forward curve.
From what I understand
OIS ...
- 115
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Cheapest-to-deliver (CTD) discount curve
Can someone explain, in layman's terms, the mechanics (the algorithm steps) of the construction of the discount curve in the case when the CSA allows the posting party to choose a currency (from a ...
- 241
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464
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Lattice pricing of derivatives under multi curve framework (OIS and LIBOR)
My goal is to price various derivatives resetting to 1M and 3M LIBOR via using a lattice. I have calculated an OIS curve for discounting and adjusted 1M and 3M LIBOR forward curves to be consistent ...
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1k
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How to use USD OIS discounting for local currency uncollateralised swaps?
I am wanting to do MTM valuations of uncollateralised swaps as our banks have switched to using the USD OIS curve for their discounting (assuming no xVA adjustments). None of the cashflows we are ...
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312
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How do I value uncollaterised swaps?
Do I need to discount using the OIS curve?
Then add some sort of FVA adjustment over and above the CVA/DVA? How do I work out a banks cost of funding?
Any help would be greatly appreciated.
...
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What discount rate for uncollateralized cross currency swaps?
To expand on this question, what happens if the uncollateralized swap is of a cross currency variety? Ignoring any xVAs, it's unclear which currency would best determine the discount rate:
a) we ...
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OIS Discount Factor Bootstrapping - Do we assume simple interest?
When I am reading papers (ie here and here) on bootstrapping discount curves they refer to obtaining discount factors from rates for swaps maturing less than a year with:
$$D(t, T_i) = \frac{1}{1+s_i(...
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1
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Collateralized Interest Rate Swap
I am struggeling with the wording "Collateralized" IRS and try to get an understanding out of it based on an example. Especially what it means that in the multi curve models the expectations are ...
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1
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225
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Which volatility to use in cap pricing with CSA discounting?
I'm currently trying to price a cap on a Libor 3M (US) collateralized in EUR. I understand that my discount curve should be the CSA and the price of a caplet should be using a Black-scholes price:
$$...
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4
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How to compute Overnight Index Swap (OIS) fixed rate?
I understand that periodically participants exchange the difference in the fixed rate and the daily compounded overnight floating rates.
My question is how should one compute the fixed rate?
What ...
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Swap rates comparison
I'd like to compare the swap rates using OIS discounting $S_{a,b}^{OIS, 6M}$ and a swap rate $S_{a,b}$ not using OIS discounting:
$$S_{a,b}^{OIS, 6M}=\sum_{a+1}^b L_{6M}(0,T_i,T_{i+6M})\times df^{OIS}...
- 177
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0
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698
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Equations for multicurve calibration with OIS discounting
I am trying to calibrate my forecast and discount curves using the multi-curve approach with OIS discounting. To do so, I have a implemented multivariate Newton-Raphson root finder. I am finding a bit ...
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Why do we discount in ois and not treasuries
OIS is the 1-day non-collateralized interbank interest rate.
Such a rate is not risk-free. The market trades a very useful curve that is much closer to "risk-free": the government bond curve.
So the ...
- 701
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1
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7k
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Quantlib python dual curve bootstrapping example
Apologies if this has been asked in the forum (I couldn't find any examples)- Can someone please point me to a worked example in python using Quantlib for dual curve bootstrapping (using EONIA for ...
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1
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899
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How were OIS discount curves built before long-term OIS were liquid?
Many sources put the switch from LIBOR discounting to OIS discounting at some point in 2008, or perhaps a little earlier (the earliest I have seen is August 2007). It seems that this may be optimistic,...
- 5,603
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2k
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Which discount curve to use when valuing multi currency swaps
I've been looking around the internet but cannot find the exact answer to my question.
Normally when valuing an IRS one uses eonia (for eur swaps) to discount the cashflows.
Let's imagine I have a ...
- 303
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2k
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Risk-free: why LIBOR pre-crisis and OIS now
Quick question as a follow-up to this post: why was LIBOR used instead of OIS pre-2007 for the risk-free rate proxy?
Please correct me if I am getting this mixed up, but from what I've seen, it ...
- 223
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652
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Starting short-end OIS zero curve building
I understand the concept of bootstrapping and building the curve when we have the values for first few maturities. However, I can't quite get how the initial values for zero curve rates are derived ...
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389
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LMM & multiple curves
I was reading through a paper that attempted to present a theoretical explanation for the divergence in value of different LIBOR tenors (and thus for the use of different curves for different tenors). ...
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CSA discounting vs OIS discounting
In the fixed income literature, is the CSA discounting the same as OIS discounting? Seems they're referring to the same thing, but couldn't find an explicit statement confirming it.
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