Overnight indexed swap

An overnight indexed swap (OIS) is an <a href="/facts/Interest_rate_swap/cJyud3Jn">interest rate swap</a> (IRS) over some given term, e.g. 10Y, where the periodic fixed payments are tied to a given fixed rate while the periodic floating payments are tied to a floating rate calculated from a daily compounded <a href="/facts/Overnight_rate/rMcQTGtM">overnight rate</a> over the floating coupon period. Note that the OIS term is not overnight; it is the underlying <a href="/facts/Reference_rate/HyW792XV">reference rate</a> that is an <a href="/facts/Overnight_rate/rMcQTGtM">overnight rate</a>. The exact compounding formula depends on the type of such overnight rate.
The index rate is typically the rate for <a href="/facts/Overnight_market/XrQFnjq4">overnight lending between banks</a>, either non-secured or secured, for example the <a href="/facts/Federal_funds_rate/H2xd8m5o">Federal funds rate</a> or <a href="/facts/SOFR/dhVnbMTv">SOFR</a> for US dollar, <a href="/facts/%25E2%2582%25ACSTR/HFejAW53">€STR</a> (formerly <a href="/facts/EONIA/4JSjm6gL">EONIA</a>) for Euro or <a href="/facts/SONIA_(interest_rate)/RnzqNhmn">SONIA</a> for sterling. The fixed rate of OIS is typically an interest rate considered less risky than the corresponding interbank rate (<a href="/facts/LIBOR/NSACUahT">LIBOR</a>) because there is limited counterparty risk.

Overnight indexed swap open-in-new

Overnight indexed swap