Swaps: Swap pricing with double curve pricing/OIS discounting

Question 1

What is an OIS (Overnight Indexed Swap)?

Answer 1

An overnight indexed swap (OIS)is a swap in which a fixed rate is exchanged with the geometric average of overnight rates over a given period

Question 2

What is the formula for calculating geometric average?

Answer 2

(1+r¹ * 1/360) * (1+r² * 1/360) * (1+r³ * 1/360)… * (1+r^x * 1/360) = 1 + r_GA * x/360

Question 3

What is the formula for f (fixed rate used as price) in double curve pricing of interest rate swaps?

Answer 3

f = (Σⁿ_t=1h(t-1,t) * S_OIS(t))/Σⁿ_t=1S_OIS(t)