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LIBOR Fallback and Quantitative Finance

Author

Listed:
  • Marc Pierre Henrard

    (muRisQ Advisory, 8B-1210 Brussels, Belgium
    University College London, London WC1E 6BT, UK)

Abstract

With the expected discontinuation of the LIBOR publication, a robust fallback for related financial instruments is paramount. In recent months, several consultations have taken place on the subject. The results of the first ISDA consultation have been published in November 2018 and a new one just finished at the time of writing. This note describes issues associated to the proposed approaches and potential alternative approaches in the framework and the context of quantitative finance. It evidences a clear lack of details and lack of measurability of the proposed approaches which would not be achievable in practice. It also describes the potential of asymmetrical information between market participants coming from the adjustment spread computation. In the opinion of this author, a fundamental revision of the fallback’s foundations is required.

Suggested Citation

  • Marc Pierre Henrard, 2019. "LIBOR Fallback and Quantitative Finance," Risks, MDPI, vol. 7(3), pages 1-15, August.
    • Handle: RePEc:gam:jrisks:v:7:y:2019:i:3:p:88-:d:257801
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    References listed on IDEAS

    as
    1. Duffie, Darrell, 2018. "Compression Auctions With an Application to LIBOR-SOFR Swap Conversion," Research Papers 3727, Stanford University, Graduate School of Business.
    2. Marc Henrard, 2004. "Overnight Indexed Swaps and Floored Compounded Instrument in HJM One-Factor Model," Finance 0402008, University Library of Munich, Germany.
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    Citations

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    Cited by:

    1. Andrea Macrina & David Skovmand, 2020. "Rational Savings Account Models for Backward-Looking Interest Rate Benchmarks," Risks, MDPI, vol. 8(1), pages 1-18, March.
    2. Michele Azzone & Roberto Baviera, 2020. "Synthetic forwards and cost of funding in the equity derivative market," Papers 2011.03795, arXiv.org, revised Jan 2022.
    3. Sander Willems, 2020. "SABR smiles for RFR caplets," Papers 2004.04501, arXiv.org, revised May 2020.
    4. Azzone, Michele & Baviera, Roberto, 2021. "Synthetic forwards and cost of funding in the equity derivative market," Finance Research Letters, Elsevier, vol. 41(C).
    5. Alessandro Gnoatto & Silvia Lavagnini, 2023. "Cross-Currency Heath-Jarrow-Morton Framework in the Multiple-Curve Setting," Papers 2312.13057, arXiv.org.
    6. Claudio Fontana & Zorana Grbac & Thorsten Schmidt, 2022. "Term structure modelling with overnight rates beyond stochastic continuity," Papers 2202.00929, arXiv.org, revised Aug 2023.
    7. Jacob Bjerre Skov & David Skovmand, 2021. "Dynamic term structure models for SOFR futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(10), pages 1520-1544, October.

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