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FINANCIAL MARKET COURSES

Swaps - Overnight Indexed Swaps

An overnight indexed swap (OIS) is a special type of fixed-to-floating interest rate swap. The floating rate is linked to a published overnight interbank call money index. The term of an OIS typically ranges from two days to two years, but can extend beyond this if required. Overnight indexed swaps are used primarily to manage the interest rate risk on overnight rates. They are also used to speculate on movements in these rates. The importance of these swaps is derived from their impact on activity at the shortest end of the yield curve – the overnight (O/N) rate. This allows market participants to manage overnight interest rate risk, promoting better leverage and liquidity, mitigating credit risk and lowering transaction costs and capital charges.

 

This course looks at overnight indexed swaps in detail, examining their features, markets, and characteristics, and showing how to price these structures.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Define an overnight indexed swap and outline its main features

    Calculate the cash flow on an overnight indexed swap

  • COURSE OUTLINE

    Topic 1: Basics of an Overnight Indexed Swap

    Features of an Overnight Indexed Swap

    Structure of an Overnight Indexed Swap

    Advantages of Overnight Indexed Swaps

    Important OIS Rates

    o SONIA

    o EONIA

    o Other Important OIS Rates

    Topic 2: Pricing an Overnight Indexed Swap

    Introduction to OIS Pricing

    Basics of OIS Pricing

    Pricing an OIS – An Example

    Exchange Delivery Settlement Price (EDSP)

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

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