This chapter introduces the concept of perfect collateralization and explains that it leads to discounting at the collateral rate. It defines overnight indexed swap (OIS) discounting, which is commonly applied for valuation of many collateralised derivatives. Generally, OIS discounting and collateral valuation adjustments (ColVAs) relate primarily to the basic discounting assumptions used when valuing derivatives, whilst there are some special cases like one‐way credit support annex (CSA). One recent change in pricing assumptions has been the move away from the use of London inter‐bank offered rate (LIBOR) to discount future cash flows. LIBOR has been one of the most crucial interest rates in finance, referenced in trillions of dollars of derivatives and other contracts such as loans. The collateral rate is the appropriate discount rate for the cash flow. In case the collateral for a transaction is remunerated in one rate and the rate for discounting the cash flow is in another, then there is a conflict leading to arbitrage opportunities.