We have developed a tool to systematically analyze this idea. In this blog we summarize its results for only one benchmark through a single graph. The benchmark is GBP-LIBOR-3M which could fallback to SONIA compounded setting in arrears. For that benchmark we looked at a total of 48 scenarios. Those scenarios where created using 8 announcement dates, 3 lookback periods (10Y, 7Y, 5Y) and the mean/median options.
The first item represented in the graph is the historical data of the market quoted spread on basis swaps GBP-LIBOR-3M v SONIA for a tenor of 30Y. We also represented the 48 scenarios. For each of them the running measure on each day over the last year has been computed. So each scenario has been run roughly 250 times to generate the curves.
This market has moved by roughly 5 basis points since the July 2018 consultation results announcement on 27 November 2018. The different scenarios still leave a range of 7 basis points for the fallback. The market is now at one of the bounds of the range that we have computed. This range should close when the exact methodology for the spread computation is published by ISDA.
On which side of the value transfer will you be on the next market move?
- Fallback transformers - Introduction
- Fallback transformers - Present value and delta
- Fallback transformers - Portfolio valuation
- Fallback transformers - Forward discontinuation
- Fallback transformers - Convexity adjustments
- Fallback transformers - magnified view on risk
- Fallback transformers - Risk transition
- Fallback transformers - historical spread impact on value transfer
Don't fallback, step forward!
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