Marc Henrard - Multi-curve framework

In my previous blog , I discussed the attempt by the National Working Group on CHF Reference Interest Rates to modify the CHF overnight benchmark index. Since my blog has been published, the minutes of the WG meeting have been published on the Swiss National Bank (SNB) website . The minutes also include the list of participants to the group. In one of the documents, an ISDA representative indicates that the guidance are " non-legally binding " and " could be used as a tool for bilaterally negotiating amendments to contracts ". The core of the issue is in the "non-legally binding" and "bilateral" words, but they seem to be largely ignored in the guidance. The issues related to the change of benchmark overnight index are of three types. Contract modification. There will be changes in a lot of contracts (OIS and CSA). That will require a bilateral agreement on each of them individually. Valuation. Changing the contracts has valuation impact...

In a blog published in September 2014 , I claimed that a change of benchmark overnight index is a difficult task. A that time the claim was a reaction to US Federal Reserve and ISDA suggestions that changing the main USD overnight index from "Fed Fund effective" rates to a general collateral overnight index (DTCC GCF Repo Index) was easy. The reason behind that difficulty was described in that blog and, to my opinion, the misconception that it could be easy comes from a misunderstanding of what "OIS discounting" means. As you know, I'm not a fan of the terminology as it hides too many fundamental issues behind the mechanism (see Section 8.1 of my book on the multi-curve framework ). People realized the difficulty of the process and in particular a US Treasury staff later commented that "Any transition away from a dominant benchmark will surely be complex and lengthy". That comment lead me to ask Did the US Treasury read my blog? In the present blog, ...

The blog's title may seems a little bit cryptic. It is how I feel after ready the long expected FAQ of the BCBS on some issues related to the FRTB. The BCBS document is available on the BIS web site: https://www.bis.org/bcbs/publ/d395.pdf Before going to the explanation of the title itself, a little bit of history is required. In December 2014, the BCBS published a document on " Fundamental review of the trading book: outstanding issues " and welcomed comments on the proposal. I send my comments to the Committee in February 2015. The comments to the Committee, including mine, have been published on the BIS website shortly after: http://www.bis.org/bcbs/publ/comments/d305/overview.htm . I have commented on the issues in several of my blogs, the first one is Commenting on the Fundamental Review of the Trading Book from March 2015. The first item on my comments was related to "Computation method for PV01". The original BCBS text was: My suggestion, after...