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Showing posts from March, 2020

Spread, transition period, cliff-effect and manipulation

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The recent volatility and blowout of the LIBOR/overnight-linked spread have reopened the question about the fallback transition period for the adjustment spread. In this post, I will reiterate my opinion on the issue, already expressed in a couple of notes (for example Section 4.2 in A Quant Perspective on IBOR Fallback Consultation Results , January 2019 ), blogs and panels. The current spread level and its evolution over the last 5 years is displayed in the graph below. This is the spread between the forward looking USD-LIBOR-3M and the backward looking SOFR compounded over the same period. The data points are aligned on the fixing date of LIBOR. The graph should end on 2019-12-20 as this is the last date for which we have the full compounded SOFR data. This is represented in yellow. Nevertheless we have LIBOR data for an extra 3 months and we have some ideas of where the SOFR could be fixing over that period. The red part of the graph represents that estimation build from known L

EUR fallback consultation: the results

I have finally found the "summary" of responses to the ISDA EUR fallbacks consultation. It was published a couple of weeks ago, but the document is not easy to find. It is available on the web at the address http://assets.isda.org/media/96f5c002/c9c0e040-pdf/ but to my knowledge there is no link to it, at least not on the main ISDA site and certainly not on the consultation or the consultation result pages. The document is called "summary" but it would better be called "some statistics and subjective selection of some comments". The full texts of the answers with the arguments provided by the respondents for the answers are not available. My answers are available on SSRN: https://ssrn.com/abstract=3520619 . Don't hesitate to indicate in the comments links to other published answers. There were only 57 answers and only one from Belgium (where has the previous other Belgian respondent gone?). The headline as provided by ISDA was that m

Libor transition plans: delaying CCP discounting big-bang?

At a Quant Summit's panel last week, I was asked about the impact of Corona virus on LIBOR transition. Some of my comments were reported in Risk in the article Pandemic threatens Libor transition plans . I'm not a medical doctor (merely a doctor in mathematics) and I have no relevant advice on the pandemic itself. But if there are events that require special efforts and staff involvement (and the current situation certainly fit this description), is there some planned changes in the market that could be delayed? My immediate answer at the panel was UMR category 5 and LIBOR cessation. UMR is a long term project; the exact date is not important, what is important is the long term impact in term of counterparty risk in derivative; the approach selected can be agreed with or not, but certainly the impact is long term. The preparation impact is huge, but the financial impact on the implementation date will be 0. Delaying its start date by some months, or at least d

ARRC corroborates my cautionary tale on LIBOR fallbacks

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On 6 March 2020, the ARRC published a document on a proposed legislative solution for the USD LIBOR contracts . I read in the ARRC document the confirmation of the cautionary tale published published in Risk.Net a little bit that a month ago. The markets movements over the last days had already confirmed the legitimacy of such a caution. An updated version of the graph published in the tale is proposed below I'm using two extracts of the document to justify the claim of the ARRC's confimation: Alternatively, many parties would likely choose to litigate the outcome or otherwise ask the courts for direction. This is the starting point of my tale, the start of the " fiction " part of it. A fiction now corroborated by the ARRC. For ARRC also it is natural that the affected parties will ask an external arbitrator (the courts) for direction and naturally the arbitrator will base its decision on information available at the time of the decision (not only based on

A polite notice to course and conference organisers

Presenting courses and speaking at conferences is work and also fun for me. I enjoy it and I'm happy to be invited to practitioner and academic events, being public or private (in-house trainings). My careers includes experiences at senior level as quantitative analyst, trader, risk manager, and academic lecturer, but does not include sandwich man or marketing board. When presenting courses or seminars, I provide a service to the audience, sharing (part of) my knowledge and personal in depth research. For a one hour seminar, the preparation time is one day, for a one day course, the preparation time is one week. As a (fiercely) independent advisor, that time is not sponsored by any state or outside company. I speak only at events where a high quality service is provided and the audience is the client (not: the speakers are the clients and the audience is the product); consequently the speakers are selected for their in-depth content, not for their marketing budget. If you conta