Advanced OIS Discounting - Building Proxy OIS Curves When OIS Markets are Illiquid or Nonexistent

The G5 currencies (USD, EUR, GBP, JPY and CHF), along with a few others, have well-developed Overnight Index Swap (OIS) markets, enabling practitioners to construct OIS curves which can then be used to discount derivative cash flows collateralized in that currency. The OIS curve is also used to strip projection curves for the different LIBOR tenors from quotes of collateralized vanilla swaps.

However, many currencies do not have Overnight Index Swaps markets, or the OIS markets are very illiquid. Constructing an OIS curve in these currencies is a much more difficult exercise.

How can practitioners use vanilla swap quotes in the target currency plus cross-currency basis swaps to simultaneously strip both the implied OIS discounting curve and the projection curve? And what if the vanilla swap market is illiquid at the tenor you need but liquid at other tenors?

On Wednesday, November 6th, 2013 featured speaker Dr. Ion Mihai, Quantitative Analyst at Numerix, discussed how to build proxy OIS curves from available market information in currencies where the Overnight Index Swap market is not well developed.

Dr. Mihai discussed:

  • OIS discounting basics: review of the standard curve stripping approach
  • What if there is no OIS curve?
    • Simultaneous calibration of discounting and projection curves
    • Assumptions behind the curve stripping approaches
  • Examples

Featured Speakers


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