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Definition of 'Overnight Index Swap'
An interest rate swap involving the overnight rate being exchanged for a fixed interest rate. An overnight index swap uses an overnight rate index, such as the Federal Funds Rate, as the underlying for its floating leg, while the fixed leg would be set at an assumed rate. Overnight index swaps are popular amongst financial institutions for the reason that the overnight index is considered to be a good indicator of the interbank credit markets, and less risky than other traditional interest rate spreads.
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Investopedia explains 'Overnight Index Swap'
Generally short-term, the interest of the overnight rate portion of the swap is compounded and paid at reset dates, with the fixed leg being accounted for in the swap's value to each party. The floating leg's present value is determined by either compounding of the overnight rate or by taking the geometric average of the rate over a given period. Like other interest rate swaps, an interest rate curve must be produced to determine the present value of any cash flows.
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Search results for 'Overnight Index Swap'
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http://www.investopedia.com/articles/economics/08/interest-rate-affecting-consumers.asp
... the actual rate that banks charge each other on overnight reserve loans ... or the Security
Industry and Financial Markets Association (SIFMA) Municipal Swap Index. ...
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http://www.investopedia.com/exam-guide/cfa-level-1/fixed-income-investments/libor-london-interbank-offer-rate.asp
... 4.10 Types of Unemployment; 4.11 The Consumer Price Index & Inflation; 4.12
Aggregate Supply & Aggregate Demand; 4.13 Short and Long ...
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http://www.investopedia.com/exam-guide/cfa-level-1/fixed-income-investments/institutional-investors-financing-purchases.asp
... 4.10 Types of Unemployment; 4.11 The Consumer Price Index & Inflation; 4.12
Aggregate Supply & Aggregate Demand; 4.13 Short and Long ...
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http://www.investopedia.com/exam-guide/cfa-level-1/fixed-income-investments/federal-issues.asp
... Analysis: The Industry Life Cycle; 13.10 The Concentration Ratio and the Herfindahl
Index; ... Flows on Put-Call Parity and the Lower Bounds; 15.36 Swap Markets and ...
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