Jul 8, 2015

What Road Are You On? Determining a Path Forward in OIS Discounting

Often in life we hit a point where paths converge, we look back behind us at a dusty beaten trail and forward at a newly paved road. It may not always be obvious though which path will be easier. Few want to be the first to test new terrain or see exactly where it leads - especially when we know the beaten path and all its imperfections so well. Does the new road require new tires? A tune up? But as that new road carries more and more travelers and we see it prove itself more precise and safer while clear of those familiar potholes, that’s when the decision starts to become an easier one.

In the early days following the financial crisis, the theoretical shift to OIS discounting may have sounded like quite a leap from the familiar single curve approach. As consensus formed around the significant disparities in pricing through the LIBOR approach, the multi-curve framework has earned its place as a market standard garnering improved profitability and limiting risk. But budgets, infrastructure, and the barrage of other regulatory changes that left buy- and sell-side firms scrambling to keep pace have put the switch to dual curve OIS Discounting curve construction on the back burner for some firms until now.

At Numerix we continue to hear from buy- and sell-side firms with questions and challenges as they make this shift. To aid in this process we’ve built a new info graphic to help explain the impact of the paradigm shift between single curve LIBOR discounting and the new OIS Discounting multi-curve approach, as well as some of the pitfalls to staying on the LIBOR path.

Additionally we’ve put together a collection of our best educational resources on OIS Discounting and curve construction fundamentals for our Numerix Fast Track course, designed to help professionals get up to speed on OIS Discounting quickly. The course features on-demand videos, lectures, papers, discussions and more and allows you to move at your own pace and select only the resources you find valuable. From foundations to practical application and advanced approaches, the course can be used as an introduction or can help more experienced practitioners simply brush up on and expand their skillset.

Whether you’re on your way to OIS discounting implementation or considering an exit from a single curve approach, we hope these resources will put you on the fast track to a deeper understanding of OIS Discounting.

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Improving Transparency in the US Retail Structured Products Market

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