OIS SWAP VALUE AT RISK

pareshgokhale · March 4th, 2003, 8:36 am

Hi,Is anybody in the know of calculating the VaR of an overnight indexed swap.I have done a calculation for a portfolio and the VaR magnitude for a 1 year and a 5 year swap has turned out to be around 0.40 and 0.80 % of notional principal.Help will be appreciated.

carlos22 · March 5th, 2003, 3:02 am

can you plz. elaborate on the method you have used. VaR seems little high for 1 yr and 5 yr OIS.

pareshgokhale · March 8th, 2003, 4:04 am

Hi,Ok.In the OIS swap Floating rates are compounded daily.Payment at every 6 months.I have used a treasury zero coupon curve historical data for 900 data points to evaluate VaR .The fixed side cashflowas are known.The floating side ,since there is a daily reset and compounding has no VaR.Only the fixed side PVs are calculated on a daily basis for 900 points and VaR is calculated on a historical basis.THe PV of the floating side remains equal to the notional principal.Please comment on this.

carlos22 · March 8th, 2003, 4:27 am

The method seems right .You can also use par swap curve which would be more appropriate to use in this case. Since swap market value is difference between PV of 2 rates ,Mkt val1 - Mkt Val 2 is risk carried by the contract.

pareshgokhale · March 8th, 2003, 5:14 am

Thanks.Could anyone indicate the expected VaR figure since it was said that the figures I have obtained ( 0.40 % for 1 year and 0.80 % for 5 year) are a bit high.Anybody working live on this?

budweiser · June 17th, 2005, 8:44 am

The indicative VaR estimates for 1Y and 5Y OIS indexed on the O/N Mibor should be in the range of 0.05%-0.1% and 0.3%-0.4% (of notional principal) respectively .However, the VaR figures could differ based on methodology, and connsideration of correlation effects.