Overnight Index Swap

An overnight index swap (OIS) is a type of interest rate swap that is based on the overnight rate index, such as LIBOR. It involves two parties exchanging a fixed rate for a floating rate based on the overnight rate index.

For example, Party A may pay Party B a fixed rate of 4% for a floating rate based on the LIBOR index for the same amount and for the same period of time. If the floating rate based on the LIBOR index is 4.5% and the fixed rate is 4%, then the OIS rate would be 0.5%.