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11

It comes down to the definition of LIBOR: London Interbank Offer Rate -> Every business day, a panel of large banks are asked by the BBA[*] (British Bankers Association) at what rate they would lend cash (unsecured) in a certain currency to another bank of that panel for a certain maturity, and that for a range of currencies and maturities. e.g. Currency: ...


10

The OIS is not the secured (collateralised) lending rate. It represents the cost of repeated overnight unsecured lending over periods of up to two weeks (sometimes more). Because it is based on overnight lending, it is assumed to have a lower credit risk than longer term interbank loans based on say 1M, 2M or 3M Libor and this is what drivers the OIS-Libor ...


8

I reproduce the Ametrano-Bianchetti paper on dual-curve bootstrapping in Python with QuantLib in a chapter of the QuantLib Python Cookbook. (Note: I'm not sure what the etiquette is about plugging one's own for-sale book. Moderators, please let me know if that's out of line.) That includes both OIS and LIBOR bootstrapping with different tenors, and it's ...


6

The OIS rate is the market rate that is most dependent on the Central Bank Deposit Rate (i use that as a broad term since it is called something slightly different across currencies but principle is the same). The transmission mechanism (that is of central concern to Central Banks) therefore impacts this rate more than any other with high correlation. OIS ...


4

No its not the Fed Funds Rate, or the Bank of England Base Rate or the ECB Refi Rate, it is the forecast, published OIS fixing index determined by the relevant authority in the currency. I.e in USD it is FFOIS, in GBP it is SONIA and in EUR it is EONIA. (Actually these names may in fact be transitioning to other in index definitions now, especially in EUR) ...


3

A curve is used to do calculations (e.g. discounting of cash flows) as of a given trade date. Bootstrapping a single curve for two different trade dates does not make sense. With the first set of data you should bootstrap an OIS curve for the 2017-02-09 trade date, with the second set of data you should bootstrap an OIS curve for the 2017-02-10 trade date.


3

You can leave it out during the bootstrap of the curve. In that context, the index is only used to ask for its conventions. Later, if you want to forecast index fixings, you can initialize a handle with the curve you bootstrapped and pass it to the index.


3

So you can get depo and swap rates from markit daily, at links like this: http://www.markit.com/news/InterestRates_<cncy>_<yyyymmdd>.zip i.e. http://www.markit.com/news/InterestRates_USD_20170105.zip and there's a spec for it here - though that's from 2009 so may be out of date, maybe you can find a more up to date one someone on their site, ...


3

Your method assumes you can borrow or lend at OIS in both currencies, but in practice you cannot. That's why there is a current basis swap market , where you lend at OIS in one currency versus borrowing at OIS + X in the other currency , where X is not zero. That is the missing piece of your calculation. Why, you may ask , is X not zero , as many ...


2

I agree with dm63 in that cross-currency swap (CCS) is essential for building FX forward curve. Let me add/correct two things: FX curve < 1 year can be backed out by FX forward contract. CCS is typically longer than 1 year, so you need it for the long-end of the FX curve. CCS swap is typically exchange of 3m USD LIBOR vs 3m FOREIGN LIBOR (or equivalent) +...


2

As far as I know, it's a market convention. The two products, namely OIS swap (fixed vs floating) and Fed Fund Libor basis swap, are developed differently, so they follow different conventions. My only guess is that it's because of the difference in maturity and period: OIS swap is typically a single-period swap (i.e. zero coupon swap) on short-end (< 2 ...


2

The fixed leg of the OIS is an unsecured rate that is very close to Risk Free Rate (RFR) because of the combination of several reasons: it is akin to a money market term deposit rate swapped against overnight deposit rates, compounded geometrically over the swap lifespan, so a net expected present value at inception of zero (Feynman-Kac) should reflect ...


2

Not all overnight indexes were given a specific class. As a workaround, you can create an instance of the OvernightIndex class and pass it the relevant parameters (fixing calendar, day counter etc.). E.g., if there wasn't an EONIA class already, you could build an instance of it as: index = OvernightIndex("EONIA", 0, EURCurrency(), ...


2

A corporate that has an ISDA master agreement to trade Interest Rate Rwaps (IRSs) with a bank will undoubtedly be capable of also trading Overnight Indexed Swaps (OISs), as will any type of counterparty for that matter. A corporate whose loan is tied to floating LIBOR will hedge using an IRS to convert to fixed. Hedging with an OIS would introduce ...


2

When you say the Black Scholes formula for currency options, I assume you are referring to the Garman-Kohlhagen formula described here. Note that this formula is based on the interest rate differential $r_d - r_f$, which essentially captures the forward premium. An even more explicit way to see this is to use the Black Model described here. Using this ...


1

It's difficult to repo more than 3 months. Essentially a bank would be locking up their balance sheet over this time period which is difficult in this post crisis regulatory environment. So traders use OIS which is relatively more liquid to lock in financing by paying fixed on term OIS for example. That's why repo trades at a positive spread to OIS, while ...


1

To construct a PiecewiseLogCubicDiscount object with a fixed reference date, please use the following constructor: PiecewiseLogCubicDiscount(reference_date, helpers, day_counter, ...) Taking your example: eonia_curve = PiecewiseLogCubicDiscount(Date(15, December, 2012), helpers, Actual365Fixed()) eonia_curve.referenceDate() # result: Date(15,12,2012) How ...


1

Suppose you wanted to value a 5Y EUR IRS with a USD cash collateralised curve this is the broad process: Get the 5Y EUR 3M / OIS basis, say this is 10bps: This establishes the discounting basis in the local (EUR) currency. Now get the 5Y EUR/USD Cross-currency basis, say this is EUR 3M-IBOR - 40bps: This establishes your link to dollars. Now get the 5Y ...


1

I think I've found the answer in another forum (which fits my initial intuition). So just to share: FRA-OIS is traded via swap. So if you think the spread would widen you pay on the swap. So you would pay OIS + Spread and receive Libor. https://www.wallstreetoasis.com/forums/tech-questions-on-eurodollar-and-fed-funds-futures-hedging


1

Suppose the currency is EUR. Taking liberty with conventions, to give you the picture, the floating leg of an OIS swap of maturity $n$ years ("$n$Y") pays every year the compounded OIS rate on all business days on the past year period whereas its fixed leg pays every year a fixed rate $K$. Now the given OIS swap rate quoted on the market is the $K$ such that ...


1

Fed funds futures are nearly sufficient. You need to know the precise way in which Fed Fund futures are calculated for settlement purposes - e.g. that it is an arithmetic average of the fed funds fixings where a fixing is weighted by the number of days between the fix and the next fix (i.e. a Friday fix will be weighted 3 times if there is no holiday on ...


1

The 3s 1s basis cannot be calculated in an arbitrage sense. You can make some reasonable assumptions. For example , if fra/iOS is tighter on s forward basis than spot, then 3s 1s is likely to have a similar term structure. But flows in the market may move it away from intuitive levels.


1

Secured and unsecured refers to lending. However OIS is a swap based on FF, not a loan. It is a different animal. So OIS is a derivative, or a bet, based on the average of future (unsecured) FF rates over a period.. For example my name is Noob Rademayer, I am not a bank so I can't lend or borrow FF in the interbank market, but I can bet on the rate at ...


1

The section two remark likely refers to inflation swaps. In figure 7: OIS is a nominal rate index, subtracting from this the inflation rate on the inflation swaps gives a constructed real rate as written in the header. Real rate = (approx) nominal rate - imflation rate.


1

I think I figured it out. The problem was with day count conventions. OIS par rate bid/ask are quoted in 360/ACT form, while zero curve rates are universalized to ACT/ACT (or whatever else is desired by the end user). Therefore, to get the zero rates, mid price of OIS swap is used to find the discount factor as 1/(1+r)^t(360/ACT) from which then zero rate ...


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