Monday, July 1, 2013

OIS Discounting in Asia

Check out the latest edition of Risk Asia. I have been quoted in this excellent article of the current state of OIS discounting at Asian and Australian banks. The key message is that OIS discounting is a fundamental change in the way banks price and view the risk associated with collateralised trades. It is a long and quite complex process and there are PnL opportunities for the early adopters as they can make choices that optimise the the type of collateral they posted. Those banks who wait will become price takers and miss the opportunities OIS discounting presents right now.

I have been through the entire process of a full OIS migration of a large multi-currency trading book. From OIS curve construction, Dual Bootstrapping to OIS, CSA spread calculation, Multi-Collateral pricing, Regression testing of Derivative Processing Systems, VAR engine adaption, CSA Risk Transfers, CSA Risk Sensitivity Generation, Risk Translation to Underlying Driver Risk, Gamma Hedging and Driver PnL Decomposition.

There are a lot of choices to be made along the way. My advice to any bank is to start now as it can easily take up to two years to get this over the line. The very first step is to make everyone from senior management, traders, middle office and finance aware of the road ahead.

Maroon Analytics is very well placed to advise any bank on the journey ahead as we have been there before.

Happy Reading


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