Savvysoft Releases New Derivatives Pricing Models Featuring OIS Discounting

12 August 2013

Award-winning TOPS suite expands with routines to generate OIS and adjusted LIBOR curves for pricing swaps, swaptions, caps and floors

Savvysoft announced today the addition of several new models to its award-winning TOPS Suite of derivatives pricing models which utilize curves based on OIS (Overnight Index Swaps).

OIS discounting is becoming the standard method for pricing derivatives, replacing the LIBOR curve which has been tainted by scandal since the beginning of the financial crisis. OIS curves are based on Fed Funds rates and interest rate swaps where the floating leg is tied to Fed Funds instead of LIBOR. However, the LIBOR curve is still significant since many instruments issued in the past are contractually tied to the LIBOR rate. New pricing models are needed which take both curves into account.

The new routines include a yield curve generator specifically designed for generating OIS curves from any combination of short term Fed Funds rates, Fed Funds futures, and OIS swaps. Another curve generator calculates an adjusted LIBOR curve which takes into account not only short term LIBOR, Eurodollar futures and interest rate swaps, but which also discounts LIBOR-based cash flows at OIS rates. This adjusted LIBOR curve is more accurate than a curve generated using LIBOR rates alone.

TOPS derivatives models utilizing both OIS and LIBOR include the ability to price non-cancellable swaps, swaptions, cancellable swaps, caps and floors. In particular, the new dual curve Swaption model allows users to set a parameter which specifies how the two curves move relative to one another due to volatility. This model is arbitrage-free.

All new models which utilize OIS curves are available immediately.

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