y use OIS instead of Libor discounting — random notes

Cash-flow discounting (to Present Value) should use a short rate, “instantaneously short”, ideally a risk-free rate, which is theoretical. In reality, there are various candidates —

Candidate: treasury bill rate. The rate is artificially low due to tax benefit leading to over-demand, higher price and lower yield. There are other reasons explained in ….

Candidate: Libor. In recent years, Libor rates are less stable compared to OIS. Libor is also subject to manipulation — the scandals. OIS is actual transaction rate, harder to manipulate.

Q: why OIS wasn’t chosen in the past?
%%A: not as actively traded (and influential) as Libor

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