Consider the equation for the par swap rate under OIS discounting in Section 12.1.3. If the OIS-Libor

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Consider the equation M N 1 f^(0, T1, Ti )7**D(0,T* ) = R^ TiD(0, Ti)

for the par swap rate under OIS discounting in Section 12.1.3. If the OIS-Libor spread is zero, show that this reduces to the classical equation D(0,T0) – D (0, TN) = N RN ., 7;D(0,T;). di=1Suppose that the OIS-Libor spread is a constant s, i.e. D(0, T) DA(0, T)e-sT. Express the swap rate RΔN in terms of the classical swap rate RN and the spread s.


Section 12.1.3.

Financial institutions have since time immemorial been concerned with mitigating counterparty risk from

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