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11 Jun 2010, Risk magazine, Risk magazine

There have been some significant changes in derivatives pricing since the financial crisis. Dealers are now much more diligent about pricing credit into derivatives, while banks are beginning to price swaps differently depending on whether or not they are collateralised. Previously, Libor was used as a standard discount rate for pricing derivatives trades, but there is growing realisation future cashflows on non-collateralised derivatives transactions should be discounted at the rate at which each bank can borrow. Meanwhile, collateralised trades are being discounted using overnight indexed swaps (OIS).

In this roundtable, three leading swaps dealers discuss the changes in the market - and in particular, the use of OIS as a discount rate for collateralised derivatives.