Hi,I have a few questions on USD swaption quotations that I was hoping somebody could answer. Are the implied ATM swaption volatilities quoted on the page VCAP21 on Reuters (and the associated spot premiums on page VCAP22) quoted assuming OIS discounting? In general, are USD swaption volatilities/spot premiums/forward premiums quoted assuming OIS discounting? In general, do USD swaption quotations assume Physical Settlement? I assumed that all swaption quotations would use OIS discounting. However, when I pull Bloomberg data for tickers of the form "USSVXXYY BBIR Curncy" (i.e. those used in the default Bloomberg VCUB) into excel, I get volatilities that correspond to pricing ATM swaptions in SWPM using the old Libor based discounting (i.e. with OIS discounting switched off in SWDF DFLT). This left me uncertain about the quotation convention.Thanks,Frank.

Hi Frank,1 - 2. No. Only VCAP22A uses the Ois discounting. 3. Yes.

Hi DeimanteR, thanks for your feedback.I spoke to Bloomberg and SuperDerivatives helpdesk on this issue. Bloomberg stated that most of the implied USD swaption volatility quotes submitted assumed OIS-based discounting but that some still assumed Libor-based discounting. For that reason, they introduced the VCUB BVOL swaption volatility cube for the purely OIS based quotes. SuperDerivatives stated that the implied USD swaption volatility quotes that they receive assumed OIS-based discounting.As a check, I used the implied volatilities on the page VCAP21 to calculate the spot straddle premiums under the assumption that the volatilities are 1) OIS based and 2) Libor based. I compared the results with the quoted spot straddle premiums on page VCAP22. The results were not conclusive. They were closer for the more liquid points on the ATM surface when using OIS discounting. However, for the less liquid points on the ATM surface, they were closer when using Libor discounting.It seems strange to me that when the major banks and Front Office pricing has moved to OIS discounting that the market would still quote implied swaption volatilities using Libor discounting. For example, this would mean that you would have to run the two methodologies in parallel i.e. Libor discounting to associate a (strike, premium) with a market quoted volatility and then feed this (strike, premium) in to the calibration of your OIS discounting based model. Am I missing something here that would explain sticking with the Libor based quotation?

Is it safe to assume that when people say OIS discounting on these types of pages they are ignoring any stochastic basis between OIS and 'IBOR (i.e. they simply discount the option value using an OIS discount factor)?QuoteOriginally posted by: frank82Hi DeimanteR, thanks for your feedback.I spoke to Bloomberg and SuperDerivatives helpdesk on this issue. Bloomberg stated that most of the implied USD swaption volatility quotes submitted assumed OIS-based discounting but that some still assumed Libor-based discounting. For that reason, they introduced the VCUB BVOL swaption volatility cube for the purely OIS based quotes. SuperDerivatives stated that the implied USD swaption volatility quotes that they receive assumed OIS-based discounting.As a check, I used the implied volatilities on the page VCAP21 to calculate the spot straddle premiums under the assumption that the volatilities are 1) OIS based and 2) Libor based. I compared the results with the quoted spot straddle premiums on page VCAP22. The results were not conclusive. They were closer for the more liquid points on the ATM surface when using OIS discounting. However, for the less liquid points on the ATM surface, they were closer when using Libor discounting.It seems strange to me that when the major banks and Front Office pricing has moved to OIS discounting that the market would still quote implied swaption volatilities using Libor discounting. For example, this would mean that you would have to run the two methodologies in parallel i.e. Libor discounting to associate a (strike, premium) with a market quoted volatility and then feed this (strike, premium) in to the calibration of your OIS discounting based model. Am I missing something here that would explain sticking with the Libor based quotation?

It's not so much about the discounting of the premia, as much as it is about the calculation of the appropriate ATMF, IMHO.

Interesting point, so to clarify the ATMF is determined using "multi-curve calibration" and the "market" bypasses the discounting issue by quoting forward premium (i.e. VCAP22 (Fwd Premium under OIS) versus VCAP22A (Spot premium under LIBOR)). Am I on the right track?So....my next question is, should there (or is there) any comparisons in the Greeks that can be made between the two quote styles mentioned above? I would assume that the probability of exercise is the same for any two common swaptions? Or is this a step too far?QuoteOriginally posted by: MartinghoulIt's not so much about the discounting of the premia, as much as it is about the calculation of the appropriate ATMF, IMHO.