大浩浩的笔记课堂——FRM考试学习笔记087

Topic 16 Overnight Index Swap(OIS) Discounting

1.The risk-free rate:

⑴The U.S. natural candidates for risk-free rates:

①Treasury bills;

②Treasury notes;

③Treasury bonds.

·特别注意！

·In the U.S.,rates of Treasury securities may not be considered the best proxy for a risk-free rate because financial institutions are required to purchase Treasury securities,due to various regulatory requirements,which may result in an artificially low yield for these securities.

⑵The derivatives participants:

①LIBOR rates:

It is the short-term(1 year or less) rate of interest at which creditworthy banks(typically those rated AA or better) can borrow from other banks.

②LIBOR-for-fixed swap: 

Such as interest rate swap in which a fixed interest rate is swapped for a floating interest rate.

⑶The usage of interest rates:

①collateralized transactions:

LIBOR→OIS:

The OIS rate is the best proxy for the risk-free rate in the valuation of collateralized derivatives portfolios.

②non-collateralized transactions:

continue to use LIBOR

2.The overnight index swap(OIS)隔夜指数型互换：

⑴definition:

It is a swap where a fixed rate for a period is exchanged for the geometric average of the overnight rates during the period.

其是指一类互换协议，其浮动利率是一单位货币在结算期间按隔夜利率投资的累计价值。

⑵characteristics:

①The fixed rate in an OIS is referred to as the OIS rate.

②A rate swapped for is the geometric average of the overnight Federal Funds rate. 

③It has relatively short lives(often 3 months or less).

④It is a continually refreshed overnight rate.

⑶spread:

3-month LIBOR-OIS spread:

①usage:

It is often used as a measure of stress in financial market.

②characteristics:

A.The higher,the worser.

B.When it is declined,it indicates the decline in stress and improvement in credit quality.

⑷curve:

determining the OIS zero curve:

If the OIS zero curve is required for long maturities:

①natural approach:

To assume that the spread between an OIS rate and the corresponding LIBOR/swap rates is the same at the long end.

②alternative approach:

Use the basis swaps where 3-month LIBOR is exchanged for the average Federal Fund rate.(30 years)

③OIS rates for longer maturities where no reliable estimates exist can be estimated from LIBOR-for-fixed swap rates.

④Using LIBOR rates rather than OIS rates for discounting will change the estimates of forward LIBOR rates.

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