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OTC Derivatives and Counterparty Credit Risk Mitigation: The OIS Discounting Framework

In: Liquidity Risk, Efficiency and New Bank Business Models

Author

Listed:
  • Paola Leone

    (Sapienza University of Rome)

  • Massimo Proietti

    (Sapienza University of Rome)

  • Pasqualina Porretta

    (Sapienza University of Rome)

  • Gianfranco A. Vento

    (Guglielmo Marconi University in Rome)

Abstract

In recent years, a complex regulatory framework has been developed, aimed at improving the functioning of the OTC derivatives market, reducing counterparty risk and enhancing transparency and mitigation for investors. We refer, in particular, to regulation of the financial markets (European Market Infrastructure Regulation), prudential supervision (Basel II and III) and the IFRS 13 Fair Value Measurement accounting regulations. These regulatory frameworks impact on financial intermediaries at organisational, procedural, measurement and collateralisation levels and, as will be seen throughout this chapter, on their pricing frameworks (or, better, on how cash flows should be discounted to define the mark to market of the financial asset). This chapter thus focuses on: (1) the regulatory framework related to counterparty risk (EMIR framework, Basel III, IAS/IFRS); and (2) methodologies to move from Libor/Euribor to OIS discounting in derivatives pricing.

Suggested Citation

  • Paola Leone & Massimo Proietti & Pasqualina Porretta & Gianfranco A. Vento, 2016. "OTC Derivatives and Counterparty Credit Risk Mitigation: The OIS Discounting Framework," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Santiago Carbó Valverde & Pedro Jesús Cuadros Solas & Francisco Rodríguez Fernández (ed.), Liquidity Risk, Efficiency and New Bank Business Models, chapter 4, pages 57-91, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-319-30819-7_4
    DOI: 10.1007/978-3-319-30819-7_4
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