RiskMinds International 2019.
The talk will take place on Friday 6 December 2019 in Amsterdam. The details of the workshop can be found on the organizer web site:
We can offer you a 10% speaker discount for RiskMinds. Contact us to obtain the code.
Marc's workshop, will be titled The future of LIBOR.
With the increased expectation of some IBORs discontinuation, the overnight benchmark changes and the increasing regulatory requirements related to benchmarks, a clear quantitative finance perspective on the impacts for benchmark-linked derivatives is becoming paramount. The recent regulations include the EU Benchmark Regulation (BMR) which will have a severe impact on the EUR market from January 2022. For all major currencies, new benchmarks have been proposed and the market are in a transition phase. Each transition has his idiosyncrasies and a common transition approach cannot be expected. On the EUR side, a recalibration approach with clean discounting has been proposed for EONIA. This will happen as soon as 2 October 2019. This changes have potentially important value transfer impacts. On the fallback side, several options have been proposed and ISDA is holding consultations on some of them. The results of the first ISDA consultations has been to select the ``compounding setting in arrears" adjusted rate and the "historical mean/median" spread approach. We present those options and emphasise their drawbacks. In particular the compounding setting in arrears lack of details and, in the words of ISDA, is not workable for some products. We also present alternative options supported by different working groups. The historical spread option can lead to significant value transfer, some of them having already taken place. We present historical data is several currencies to support the theoretical developments. The presentation focuses is on the quantitative finance impacts for derivatives.
October 2019 update: ESTR has now been published since 2 October and EONIA re-calibrated to ESTR+8.5bps. New consultation on fallback parameters and tenors have been issued, new value transfers have been observed. On top of this, CCPs have announced their transition plan from the current ON benchmarks (Fed Funds and EONIA) to the new ones (SOFR and ESTR). More opportunities to make or lose money if you understand the fine quantitative details of the transition or not.
Graphical representation of elements of my personal filtration related to the fallback.
Don't hesitate to reach out if you want to meet at RiskMinds.