Bojan Nikolic: Using and Understanding the QuantLib Addin

[website home] | [BN Algorithms]

Overnight Index SwapsΒΆ

Overnight Index Swap (see e.g., [1]) is an interest rate swap where the floating rate is determined by the geometric average of a published fixings for an index of overnight lending rates (e.g., Fed Funds rate or the EONIA). The key features of the swap are:

  1. There is no exchange of principal, minimising credit risk

  2. The floating rate is equivalent to reinvesting the principal every night in the overnight money market

  3. Settlement is net, at the maturity of the swap. Convexity adjustment is therefore minimal

Futures on OIS are for example traded on the CME [2] and can be used to speculate and hedge on future overnight interest rates and conversely to back out the market expectations of overnight interest rates. OIS futures are not equivalent to the Fed Funds Futures [3] as the former are calculated as the geometric average while the latter is calculated as the arithmetic average of the overnight effective fed funds rates.

Previous topic

Loop parameters

Next topic

Periods of time in QuantLib