Risk glossary


OIS discounting

OIS discounting is the standard methodology for valuing cash-collateralised derivatives contracts using overnight index swap rates – the rate that would be paid by the collateral receiver to the poster.  

Previously, Libor was used to discount all derivatives. This changed after the spread between Libor and other overnight rates blew out dramatically during the 2008 financial crisis. As a result, most of the major dealers switched to OIS discounting, with the applicable rate determined by the currency of the collateral being posted. For instance, a swap collateralised with US dollars is discounted using the federal funds rate, while a trade with euro collateral is discounted using the Euro Overnight Index Average (Eonia).

Major swaps clearing houses have also moved to OIS discounting.

Click here for articles on OIS discounting. 

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