1. OIS discounting in a non-Euro country
A Nordic IPV perspective
By Martin Karlsson
London, 23rd September 2013
10/11/2011

2. Disclaimer:
The opinions expressed in this presentation are the views of the author and do not reflect the views & opinions of Nordea or any other previous employers.
Derivatives Funding and Valuation,

3. Introduction: Nordea main presence
Finland, EUR
Denmark, DKK
Sweden, SEK
Norway, NOK
Derivatives Funding and Valuation,

4. CSAs? Yes OIS rates? Yes LIBOR-OIS? Yes
Basics:
CSAs? Yes OIS rates? Yes LIBOR-OIS? Yes
Derivatives Funding and Valuation,

5. Overview: Conclusion: Liquidity challenges Uncertainty CCY
Unsec. 1day ref. rate
Partici-pants
Real Trans.
OIS
quotes
Comment
DKK
TN-Rate 8 X
30Y,
4bp
CITA fixing ≤1Y
SEK
T/N-STIBOR 5
30Y, 10bp
NOK
NOWA 11 -
Conclusion:
Liquidity challenges
Uncertainty
Derivatives Funding and Valuation,

6. Curve construction: Challenges: Cross-currency basis swaps
Value the CSA
Curve => Curve Object
Challenges:
1. CSA Product Scope Currency
Repo rate: Danish mortgage bonds 20 bp spread to government
Derivatives Funding and Valuation,

7. Proactive stakeholder management!
What next? After desk quants have constructed Curve Objects. Are we all on the same page?
Massive Change!
CSA governance
Integrate CSA data
Change management
Cash Accruals
Allocation of realized PL
Strong communication!
Proactive stakeholder management!
MO experience: more and more involved
Derivatives Funding and Valuation,

8. Valuation Control and IPV
Focus from Regulators => Prudent Valuation Framework
Valuation Uncertainty => Valuation Uncertainty Appetite
Strong Valuation Control Framework needed
Derivatives Funding and Valuation,

9. Control and OIS discounting:
Input Control (IPV)
Two-step process
IPV data hierarchy
Strong IPV tools needed. An Opportunity!
Model Control
Is a model
Add instrument
Output Control
Judgment needed!
Derivatives Funding and Valuation,

10. Conclusion and final word
OIS discounting is here (in the Nordic).
A major overhaul of many IT systems and processes.
Challenges:
Liquidity of OIS markets.
Collateral issues in DK RMBS.
Much more complexity.
Increased uncertainty.
An opportunity to strengthen the IPV process!
A strong Valuation Control Framework needed.
Derivatives Funding and Valuation,

11. References: ”Goldman and the OIS gold rush”,
”Dear CEO Letter: Valuation and Product Control”,
”ISDA Margin Survey 2013”,
Derivatives Funding and Valuation,

12. Product Control, IPV Team, Nordea
Thank you.
Martin Karlsson
Product Control, IPV Team, Nordea
Opinions expressed in this presentation are the views of the author & do not reflect the views & opinions of Nordea
Derivatives Funding and Valuation,