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jon
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Discounting collateralised positions using Fed Funds (OIS) curve

August 20th, 2009, 12:48 pm

We currently discount using Libor curve, on the basis that this is where we can fund at.I have positions, including non-USD denominated positions, covered under CSA which are collateralised daily in USD with interest calculated based on Fed Funds.How should I be discounting? I understand market practise is mixed but some major players inc Goldmans are discounting using an OIS curve.Any advice, papers etc.Much appreciated.Jon
 
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Martinghoul
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Discounting collateralised positions using Fed Funds (OIS) curve

August 20th, 2009, 1:30 pm

Et tu, Brute...See here: Thread 1And here: Thread 2
Last edited by Martinghoul on August 19th, 2009, 10:00 pm, edited 1 time in total.
 
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DavidJN
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Discounting collateralised positions using Fed Funds (OIS) curve

August 20th, 2009, 2:06 pm

There is a financial institution in the world that can fund at LIBOR?
 
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Gmike2000
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Discounting collateralised positions using Fed Funds (OIS) curve

August 20th, 2009, 4:17 pm

you mean libor is not the rate at which you can re-invest your coupons?you mean 90% of all finance books are crap and need to be burned?you mean finance students (MBAs etc) are still being taught that libor is the funding rate and will continue to infect the real world with idealised free-rational-market academic nonsense?i am oh so shocked
 
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Martinghoul
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Discounting collateralised positions using Fed Funds (OIS) curve

August 20th, 2009, 5:34 pm

Gents (gmike & david), your sarcasm notwithstanding, don't you think it's possible that there's a perfectly reasonable explanation for the OP's situation? Could it be just a function of the desk's internal arrangements with the org's global treasury? I say that, because my treasury uses LIBOR as a matter of convenience. Hence my questions in the threads I mentioned.
 
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pcg
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Discounting collateralised positions using Fed Funds (OIS) curve

August 22nd, 2009, 4:30 am

Will there not always be a markt consensus on what curve to discount on ? Because if you are using a diff curve , there will be a problem if one is trying to terminate a swap and the settlement amounts will be different based on your discounting being different .
 
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Martinghoul
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Discounting collateralised positions using Fed Funds (OIS) curve

August 22nd, 2009, 9:38 am

QuoteOriginally posted by: pcgWill there not always be a markt consensus on what curve to discount on ? Because if you are using a diff curve , there will be a problem if one is trying to terminate a swap and the settlement amounts will be different based on your discounting being different .No, there won't necessarily be a consensus. That's precisely the point of the discussion in the two threads I have mentioned...
 
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mathmarc
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Discounting collateralised positions using Fed Funds (OIS) curve

August 24th, 2009, 8:15 am

QuoteOriginally posted by: MartinghoulQuoteOriginally posted by: pcgWill there not always be a markt consensus on what curve to discount on ? Because if you are using a diff curve , there will be a problem if one is trying to terminate a swap and the settlement amounts will be different based on your discounting being different .No, there won't necessarily be a consensus. That's precisely the point of the discussion in the two threads I have mentioned...I fully agree, there won't necessarily be a consensus. The only moment were there is (should be) a consensus is for ATM standard vanilla swap. In that case the value is 0. For all other cases, it depends. This is not only theory, it is also what one notices in practice. To notice that you don't have to try to terminate a swap. If you try to enter into an asset swap (for example to asset swap a bond) and the bond price is away from par, you will see noticeable differences between banks quotes. Some banks use Libor for the non-par part some use very different curves (OIS, Limean, Libis, ...)
 
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Martinghoul
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Discounting collateralised positions using Fed Funds (OIS) curve

August 24th, 2009, 8:29 am

QuoteOriginally posted by: mathmarcQuoteOriginally posted by: MartinghoulQuoteOriginally posted by: pcgWill there not always be a markt consensus on what curve to discount on ? Because if you are using a diff curve , there will be a problem if one is trying to terminate a swap and the settlement amounts will be different based on your discounting being different .No, there won't necessarily be a consensus. That's precisely the point of the discussion in the two threads I have mentioned...I fully agree, there won't necessarily be a consensus. The only moment were there is (should be) a consensus is for ATM standard vanilla swap. In that case the value is 0. For all other cases, it depends. This is not only theory, it is also what one notices in practice. To notice that you don't have to try to terminate a swap. If you try to enter into an asset swap (for example to asset swap a bond) and the bond price is away from par, you will see noticeable differences between banks quotes. Some banks use Libor for the non-par part some use very different curves (OIS, Limean, Libis, ...)Which is why par-par asset swaps are sorta anathema to me now... For all their drawbacks, it's yield-yield only for yours truly.