Although it has been customary in the past to use libor as part of the discount factor, the index exchange rate (OIS) has been used more often for overnight stays since the global financial crisis. An OIS is an interest rate swap in which a day-to-day rate, such as the federal funds rate, is exchanged for a fixed interest rate. The OIS rate is generally considered less risky because it indicates an interbank counterparty risk. With the guarantee in the market of interest rate swaps, interest rate swaps have become relatively low risk and the OIS rate is more risk-free than LIBOR. The OIS rate is considered less risky than LIBOR, as an OIS contract only includes the exchange of interest payments on the basis of a fictitious capital, while a LIBOR loan requires the repayment of interest and capital. If the OIS curve is used to cut interest rate swaps, the profitability of the derivative instrument and the ratio of counterparties are better taken into account. However, there are still some practical problems in the use of the OIS curve in swap valuations, such as necessity. B of separate curves to estimate variable payments and cash flows. Although the swap curve is generally similar to the corresponding sovereign bond yield curve, swaps may be more or less than yields on equivalent-maturity government bonds. The difference between the two is the “swap spread” that is displayed in the following table. Historically, spread has had a positive trend on maturities, reflecting the increase in banks` credit risk relative to the states. However, other factors, including liquidity and supply and demand dynamics, mean that the swap spread is now negative in the U.S. over longer maturities.
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