Financial institution and end-users of interest rate derivatives face many challenges when navigating through those changes and their impacts. The impacts are far reaching and relate to not only to the legal and operational issues but also to pricing, risk, modelling, validation and implementation in systems.
muRisQ Advisory has an extensive experience related to benchmarks and LIBOR transition. We have published on the subject since more than 5 years and have modeled and implemented the impacts in theory and in practice. We have been guest speaker at major academic and practitioner conferences in the last 5 years (see partial list at the bottom of the page).
We have created a set of introductory videos. Those videos are available on our Youtube channel.
- Benchmarks: tenor deposit and overnight (11:32)
- Why a transition? (15:01)
- Overnight transition: EFFR to SOFR and EONIA to ESTR (21:10)
- CCP big bang - EUR (6:32)
- CCP big bang - USD (21:42)
- IBOR fallback - overview (16:40)
- IBOR fallback - adjusted RFR (18:06)
- IBOR fallback - spread (17:11)
- IBOR fallback - value transfer (17:34)
Our libraries include the Fallback Transformers which allow to apply the exact fallback details to actual trades and portfolios. The transformation details include overnight composition, period offset, spread applicable, and discontinuation date. It is suitable for what-if analysis and risk management.
We have also proposed a series of alternative fallbacks for swas, cap/floor, and swaptions. The goal of those alternative fallbacks is to make the live of both counterparties easier through the transition. The standard fallback proposed by ISDA definitions often transform plain vanilla instruments into exotics. It is possible to keep similar methods but to improve them in such a way that only vanilla instruments result from the fallback.
We help institutions in this regards in several ways:
- Public workshops. Recent presentations: Quantitative Finance Conference (Rome, 16 October 2019), WBS Interest Rate Reform conference (London, 4 March 2020), Interest Rate Reform (On-Line , July 2020), QuantMinds International (November 2020), Interest Rate Reform (On-Line, February 2021), CEETA conference (Warsaw, Poland, April 2021). CEETA (Warsaw, Poland, 6 September 2021), CQF Institute (London, UK, 6-7 October 2021), WBS Interest Rate reform conference (London, UK, 19-21 October 2021), Quantitative Finance Conference 17-19 November 2021, CEETA (Warsaw, Poland, 20-21 June 2022)
- In-house tailor-made workshops on the quantitative finance impacts (valuation, risk, value transfer, model validation, new instruments, protocol, bilateral agreements). Typical introductory agenda available on our training page. More quantitative finance in-depth versions can be tailor made to each client.
Independent impact assessment
- We use our own production grade systems, including Fallback Transformers, developed over the last years
- Run different hypothesis for fallbacks and spreads on exiting portfolios
- Analysis of re-papering and protocols impacts, cost of protocol signature
- Analysis of value transfer on actual portfolios
- Change of collateral/discounting: CCP and bilateral big bangs.
- Post-fallback risk analysis
- Cap/floor on composition (including production grade implementation)
- Swap rate fallback and alternatives (including production grade implementation)
- Expert witness
- Support of quantitative analysis and risk groups in implementation (based on more than five years of internally developed research and systems)
- OIS discounting, transition adjustments
- New models development
- Senior stakeholder support
- New exchange traded products development
- Alternatives to standard fallback procedures
- Reduction of existing exposure
- Support for negotiation with counterparties
- Dispute support
- Swap Rate fallback: unreasonable effectiveness of approximations and alternatives. February 2022. Accepted for publication in Wilmott magazine. Available at SSRN: http://ssrn.com/abstract=4130090
- Swap Rate: cash settled swaptions in the fallback. September 2021. Accepted for publication in Risk.
- Derivative pricing with two collateral rates. Model Development, muRisQ Advisory. February 2021. Available at SSRN: http://ssrn.com/abstract=3785526.
- Description of overnight floaters with principal adjustment and its advantages. Market infrastructure analysis, muRisQ Advisory, December 2020. Available at http://ssrn.com/abstract=3755906.
- CCP discounting big bang: convexity adjustment. Risk.Net. Published online 18 September 2020. Available at (subscription required): https://www.risk.net/cutting-edge/banking/7682566/ccp-discounting-big-bang-convexity-adjustment. Appeared in October 2020 paper edition
- Piterbarg, V., Interest Rates Benchmark Reform and Options Markets (February 14, 2020). Available at SSRN: https://ssrn.com/abstract=3537925
- Henrard, M., Discounting Transition: Big Bang Impacts (February 2, 2020). Market Infrastructure Analysis, muRisQ Advisory, February 2020. Available at SSRN: https://ssrn.com/abstract=3530464
- Turfus, C., Caplet Pricing with Backward-Looking Rates (January 1, 2020). Available at SSRN: https://ssrn.com/abstract=3527091
- Lyashenko, Andrei and Mercurio, Fabio, Looking Forward to Backward-Looking Rates: Completing the Generalized Forward Market Model (November 6, 2019). Available at SSRN: https://ssrn.com/abstract=3482132
- Henrard, M., LIBOR: Don't fallback, step forward. Wilmott Magazine, 2019 (104): 24–-35, November 2019.
- Henrard, M., Answer to 'Consultation on Final Parameters for the Spread and Term Adjustments in Derivatives Fallbacks for Key IBORs' Issued by ISDA (October 22, 2019). Market Infrastructure Analysis, muRisQ Advisory, October 2019. Available at SSRN: https://ssrn.com/abstract=3476530
- Henrard, M. SOFR Discounting Transition: Multi-Curve and Quantitative Perspective (October 28, 2019). Market Infrastructure Analysis, muRisQ Advisory, October 2019. Available at SSRN: https://ssrn.com/abstract=3478769
- Henrard, M. LIBOR fallback and quantitative finance. Risks, 7(88), August 2019. Open Access article available at https://doi.org/10.3390/risks7030088.
- Lyashenko, A. and Mercurio, F. (2019). Libor replacement: a modelling framework for in-arrears term rates. Risk.net. Published online 14 June 2019. Preprint at SSRN: https://ssrn.com/abstract=3330240 (February 6, 2019)
- Henrard, M., A Quant Perspective on IBOR Fallback Consultation Results (January 1, 2019). Market Infrastructure Analysis, muRisQ Advisory, January 2019. Available at SSRN: https://ssrn.com/abstract=3308766
- LIBOR Fallback transformers! Market Infrastructure blog, muRisQ Advisory, October 2018.
Available at https://murisq.blogspot.com/2018/10/libor-fallback-transformers.html.
Our LIBOR transition expertise has been recognized by the market as documented from the invitations to many practitioner and academic finance conferences and seminars. Marc has been invited as workshop lecturer, guest speaker or expert panelist at the following events:
- The future of LIBOR (CFA Society Denmark, Copenhagen, Denmark) - 24 January 2019
- CASS Financial Engineering seminar (CASS Business School, London, UK) - 6 February 2019
- Quant Summit (organized by Risk.Net, London, UK) - 6-7 March 2019
- Singapore Management University seminar - 8 April 2019
- QuantMinds International (Vienna, Austria) - 14-16 May 2019
- CASS Business School workshop on LIBOR transition (London, UK) - 19 June 2019
- Risk Live (organized by Risk.Net, London, UK) - 27 June 2019
- LIBOR: Don't fallback, step forward (CQF Institute talk, London, UK) - 23 September 2019
- CCP round-table (organized by Risk Dynamics, Brussels, Belgium) - 10 October 2019
- The 15th Quantitative Finance Conference (organized by WBS, Rome, Italy) - 16 October 2019.
- The 5th Quant Insights Conference (organized by CQF Institute and Wilmott, London, UK) - 15 November 2019.
- The future of LIBOR (workshop at RiskMinds International, Amsterdam, Netherlands) - 6 December 2019
- Interest rate reform conference (organized by WBS, London, UK) - 4-6 March 2020
- QuantSummit Europe (organized by Risk.Net, London, UK) - 11-12 March 2020
- Online Interest Rate Reform Conference (organized by WBS, online) - 13-17 July 2020
- QuantMinds International (Hamburg, Germany) - 11-15 May 2020 / postponed to November 2020
- Panelist on Ibor Transition at The 16th Quantitative Finance Conference (Online) 16 November 2020.
- Libor transition workshop (The Université de Paris, online) - 21 January 2021.
- Online Interest Rate Reform Conference (organized by WBS, online) - February 2021
- Workshop on Benchmarks in transition. CQF Institute (London, UK), May 2021.
- Workshop on Benchmarks in transition. CEETA (Warsaw, Poland), 6 September 2021.
- Workshop on Benchmarks in transition. CQF Institute (London, UK), 6-7 October 2021.
- Workshop on LIBOR transition: almost there and so much to do for quants. WBS Interest Rate reform conference (London, UK), 19-21 October 2021.
- Workshop on Benchmarks in transition. CEETA (Warsaw, Poland), 5 November 2021.
- ICE Swap Rate fallback: Approximations, exotic and convexity. Interest Rate Reform Conference (London, UK), 20-21 October 2021.
- Cash-settled swaption and the ICE Swap Rate fallback. The 17th Quantitative Finance Conference (online), 17--19 November 2021.
- Benchmark Congress. CEETA (Warsaw, Poland), 20-21 June 2022.