Monday, 28 October 2019

Answer to the ISDA consultation on Final Parameters for the Spread and Term Adjustments

ISDA third consultation regarding IBOR fallback closed last week. As for the previous consultation, we have provided a detailed answer. The text of our answer can be found on SSRN:


The consultation asks many questions related to technical details for the IBOR fallback term. Unfortunately it does not consider the main issue, which is that the proposed base solution of compounded setting in arrears is ill-conceived. It fundamentally changes the meaning of IBOR fixing and the question and workaround related to the term are the consequence this ill-conception. Most of the questions consists of workaround for issues that have been described in detail over the last 18 months.

The spread part also focuses on narrow technical questions on how to compute it. It does not answer the question on how to prevent this computation to harm end users through the implied massive value transfer.

We suggest once more to ISDA to review the decision to base the fallback on the compounding setting in arrears and historical mean approaches.

Associated documents:

The answer should be read in conjunction with our previous answer and publication, including a couple of paper in peer reviewed journals.
  1. Answer to``Consultation on Certain Aspects of Fallbacks for Derivatives Referencing GBP LIBOR, CHF LIBOR, JPY LIBOR, TIBOR, Euroyen TIBOR and BBSW'' issued by ISDA. October 2018. Available at
  2. LIBOR Fallback transformers! Market Infrastructure blog, muRisQ Advisory, October 2018. Available at
  3. A Quant Perspective on IBOR Fallback consultation results. Market infrastructure analysis, muRisQ Advisory, January 2019. Available at
  4. Answer to ``Supplemental Consultation on Spread and Term Adjustments for Fallbacks in Derivatives Referencing USD LIBOR, CDOR and HIBOR and Certain Aspects of Fallbacks for Derivatives Referencing SOR'' issued by ISDA. July 2019. Available at
  5. Answer to ``Consultation on Final Parameters for the Spread and Term Adjustments in Derivatives Fallbacks for Key IBORs'' issued by ISDA. October 2019. Available at
  6. LIBOR fallback and quantitative finance. Risks, 7(88), August 2019.
  7. LIBOR: Don't fallback, step forward. Wilmott Magazine, November 2019, to appear.