Can we think of Overnight Index Swaps as short-term IRS?

Question

OIS are a series of fixed-rate cashflows discounted at the overnight rate, swapped for overnight (floating) rate.
IRS are similarly discounted fixed-rate cashflows, swapped on an IBOR-floating rate.
Since both of them are used to swap between fixed rate payment and float rate payment, can we think of OIS as short-term IRS?

noob2 · Answer

The concept is similar, but the mechanics are slightly different. Making a quarterly payment based on 3-month Libor is fine, but making daily payments of the overnight rate is inconvenient (too much work in the back-office making and checking the payments), so a single payment is made at maturity (or on the annual anniversary of the swap's inception), based on a mathematical geometric averaging formula applied to all the overnight rates.

Answered by noob2 on November 30, 2021

David Duarte · Answer

An Interest Rate Swap (IRS) normally refers a swap between a fixed rate and a floating rate. Floating rate being a single fixing for each accrual period and payment.
An overnight indexed interest-rate swap will have the daily overnight index compounded throughout the accrual period.  A vanilla IRS will not compound during the accrual, being a term rate.

Can we think of Overnight Index Swaps as short-term IRS?

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