Marc Henrard - Multi-curve framework

Episode 2: Zero rate collateral There is certainly a push for more standardisation of financial products and their collateral terms – Credit Support Annexe (CSA) and margining process in particular. One particular discussion is around the CSA collateral remuneration and its equivalent Price Alignment Interest (PAI) used by Central Counterparts (CCPs). In the current standard terms an overnight rate (Fed Fund, EONIA, etc.) is paid in the currency of the trade in most cases. One potential solution to simplify the term of the CSAs, that I propose as my next fiction, would be to pay interest at a rate of 0 on the collateral. This would certainly simplify the computation of the interest part of any variation margin. This proposal would align collateral and CCP process to the margin process used for exchange-traded futures. The amount paid as variation margin on futures, on OTC and on cleared trades would not include any interest any more and would be in line. As a secondary benefit, th...

In one of my recent blogs , I proposed the first episode of a series in Finance Fiction. The blog presented packs and bundles options as an addition to the interest rate exchange-traded offering; it was based on ideas initially proposed in early 2013 in a paper on STIR futures and presented in Section 7.8.6 “Ceci nest pas une option” of the book. It turns out that either someone read the paper and the blog and took it for reality or the ideas proposed were not so fictional. CME has announced it will start offering bundle futures (1) and bundle futures options from September 2014. I’m not an expert in legal matters: Can an author claim copyright on reality when reality copies the author’s fiction? The quote I used in the original paper on the subject (and in the book) was Messieurs les Anglais, tirez les premiers ! Attributed by Voltaire to the (French) Comte d'Auteroche at the battle of Fontenoy, 1745 and I continued with The XXIst century corporate warfare is prob...

Finance fiction After numerous conferences on the impact of regulation and the new market structure on quantitative finance, it’s time to start thinking about the impact the quants can have on regulation and the market structure. The book not only covers theoretical considerations about the foundations of a multi-curve framework, and practical considerations about liquid instruments, it also contains directly or indirectly some "finance fiction" episodes where non-existent instruments or practices are described. The reason to introduce such fictions in a non-fiction book is that the market is changing and is largely incomplete . Instruments that were completely redundant in the past are now becoming nice-to-haves or even must-haves . Changes in regulatory treatment, movement to futurization, generalisation of collateral and margining practices have created a moving ground. The financial landscape is moving; I try to guess some of the potential new characters. After...