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Showing posts from November, 2019

Still confusion on OIS, overnight benchmark, collateral and discounting.

An important quant software provider proposes a webinar titled: Impact Analysis: The 2020 Clearing House Switch from OIS to SOFR Discounting It seems they don't understand what OIS is and what OIS discounting means. Please read my multi-curve book , Chapter 8 for the details. A meaningful title would be The 2020 Change in collateral rate at CCPs from EFFR to SOFR: discounting transition

Alae Iacta Est (2)

alea iacta est (actually almost " est ") The results of " The Final Parameters Consultation " have been published . The winner is " historical median approach over a five-year lookback period " with " two banking day backward shift adjustment period ". The exact meaning of this has been subcontracted to Bloomberg. This clarifies that the " final " adjective in the consultation name was related to the consultation, not to the parameters . Clearly ISDA did not listen to my suggestion of publishing the results when markets are closed and announcing the publication date in advance. My suggestion was made in order to limit the impact of non-public material information. But I guess that those issues are not deemed important in this circumstance. Probably the lawyers don't understand the impact of information on derivative valuation. Let me remind you that present value in s is N s E[(N t ) -1 Pay-off t | F s ] It dependents

Fahrenheit 451, unfortunately close from home

I just finished reading Fahrenheit 451 . Certainly not a new book but a new reading for me. A world where books are outlawed and burned to the last one. The burning is not due to the physical books made of paper, but due to their content. Books contain truth, history, and imagination. All of them dangerous to status quo seeking classes. Luckily this is a world of fiction and the books are not (yet) forbidden. A world of fiction, as should be a world where some people a jailed and tortured for publishing the truth, a world where some people are jailed and tortured for expressing opinions. Unfortunately, in our world those issues are a reality, including very close from home.

Short story on the fallback protocol cost.

Another episode in the finance fiction series! Everything below is pure fiction. I'm an end-user with a LIBOR swap transacted with my trusted bank on a bilateral uncleared basis. I receive LIBOR (and pay fix) for 10 years. I don't sign the ISDA proposed fallback protocol and my swap stay under current ISDA definitions. Move forward to the future: Come the first reset date after the discontinuation date. The LIBOR rate is not published on Reuters screen LIBOR01. We call four reference banks in London at 11:00 am London time, none of them provide a quotation of its rate. We call four reference banks in New York at 11:00 am New York City time, none of them provide a quotation of its rate. The fallback in the ISDA definition stops there (See ISDA definitions, Article 7, Section 7.1. Rate Options. (ab) U.S. Dollar. Paragraphs (xxii) and (xxv)). We can not agree on a rate on a bilateral basis with the bank counterparty. We go to court/arbitrage to get an independent assess