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
Ion Mihai, PhD
Ion Mihai is a Quantitative Analyst for Numerix. His focus is on developing solutions around CVA, FVA, and Numerix’s CrossAsset Server platform, as well as working with clients and prospects as a pre-sales quant on bespoke solutions and training. He recently co-authored a paper on Funding Value Adjustment with Drs. Alexander Antonov and Marco Bianchetti. Prior to Numerix, Dr. Mihai started his career as a research scientist in Algebraic Geometry at the Weizmann Institute, Israel, following a PhD in Mathematics from the Fourier Institute in Grenoble. After joining the financial software industry, he worked as a quant developer on LMM and other fixed income models, and performed independent valuation for a wide range of derivatives, including: structured rates, short- and long-dated equity exotics, equity baskets and structured credit products.
As Chief Marketing Officer and Executive Vice President of Global Marketing & Corporate Communications, James leads the company’s global marketing and corporate communications efforts, spanning a diverse set of solutions and audiences. He oversees integrated marketing communications to clients in the largest global financial markets and to the Numerix partner network through the company's branding, electronic marketing, research, events, public relations, advertising and relationship marketing.
Since joining Numerix in 2008, James has launched the organization’s award-winning thought leadership program, bringing to light challenges and insights from Numerix market experts. He also hosts the Numerix Video Blog, tackling the challenges pressing the derivatives markets—from regulatory issues to trading strategies.
Prior to joining Numerix, James served as Managing Director of Global Marketing and Communications for Fitch Ratings. During his tenure at Fitch, he built the firm’s public relations program, oversaw investor relations and led marketing and communications plans for several acquisitions. Prior to Fitch, James was a member of the communications team at Moody's Investors Service.
