Abstract
Standard pricing theory assumes that traders can borrow and lend at a unique risk-free rate, ignoring the intricacies of the collateralization market. Since 2007, the market has adopted an advanced methodology for valuing interest rate derivatives, based on the standard Credit Support Annex (CSA), which is a document used to define the terms under which collateral is posed between counterparties. This change however, has not yet been implemented in South African markets due to the difficulty created by the lack of a liquid overnight indexed swap (OIS) market in South Africa. In this paper, we propose two proxies, which could be used to approximate an OIS market.We compare the implied forward rates as well as the pricing of a vanilla swap under these OIS methods to the classical case.
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© 2014 Springer International Publishing Switzerland
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Daniels, A.R., Labuschagne, C.C.A., Roux, T.M.Ol. (2014). Valuation of Interest Rate Derivatives under CSA Discounting. In: Huynh, VN., Kreinovich, V., Sriboonchitta, S. (eds) Modeling Dependence in Econometrics. Advances in Intelligent Systems and Computing, vol 251. Springer, Cham. https://doi.org/10.1007/978-3-319-03395-2_36
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DOI: https://doi.org/10.1007/978-3-319-03395-2_36
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-03394-5
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