Using OIS for Valuation and Hedge Effectiveness Testing

Free whitepaper: Use of Overnight Index Swap (OIS) Rate when Valuing Derivatives and Assessing Hedge Effectiveness — prepared by KPMG LLP (Canada)

This paper, prepared by KPMG Canada, explains the reasons behind the shift from LIBOR to OIS to value derivative contracts, including an explanation of related practical issues and the implications for hedge accounting and assessing effectiveness.

During the crisis, there was an unexpected and extreme market dislocation in which liquidity and credit spreads became a significant component of the LIBOR level associated with different tenors across all currencies. The LIBOR-OIS basis spread widened from less than 10 basis points (bp) to over 300 in a one year period.

Learn how OIS is becoming the new standard for valuing derivative contracts and the implications this has for hedge accounting and hedge effectiveness testing.

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Use of Overnight Index Swap (OIS) Rate when Valuing Derivatives and Assessing Hedge Effectiveness