Overnight Index Swap (OIS)
Interest rate swap exchanging fixed rate for an overnight floating benchmark.
Detailed Description
Overnight Index Swap (OIS)
What is the primary purpose of an Overnight Index Swap (OIS)?
The primary purpose of an OIS is to exchange interest payments based on a notional principal amount to hedge against interest rate risk or speculate on future interest rate movements.
Who are the main participants in the OIS market?
The main participants include banks, financial institutions, hedge funds, corporations, and central banks.
What are the benefits of using OIS contracts?
Benefits include lower credit risk, transparent pricing mechanisms, and reduced counterparty exposure due to netting of payments.
How does OIS differ from other interest rate derivatives like IRS and FRAs?
OIS contracts are typically shorter in duration, focus on overnight rates, and rely on actual overnight rates for payment calculations, unlike IRS and FRAs.
What regulatory frameworks govern the OIS market?
The OIS market is governed by regulations such as the Dodd-Frank Act in the U.S. and EMIR in the EU, aimed at enhancing transparency and reducing systemic risk.