Surprised by surprise and lack thereof

The FCA has indicated that they could make an announcement related to LIBOR survival as early as the end of this year. This announcement has created surprises in the market as reported in Risk.net: Shifting Libor fallback window jolts basis market.

Announcement date has always been the reference date for spread computation mentioned by ISDA. Personally, I would not have selected that date, but there was never ambiguity about it from the ISDA side. All my presentations related to spread computation have always included those details. The graphs I have presented (see here, where there is clearly 4 announcement date scenarios, and here, with up to 5 bps impact) included scenario analysis on the announcement date.

Moreover I have also emphasized the announcement options by FCA, IBA and panel banks (see  Spread, transition period, cliff-effect and manipulation). Each decide of some elements of the announcement date, so to some extend they decide of the spread.

The formulas about LIBOR that I have discussed in more academic publications  (LIBOR Fallback and Quantitative Finance) or at practitioner level (LIBOR: Don't fallback, step forward), always insisted on the two stopping times: announcement and discontinuation/trigger. See the Risks article formula below.


Figure 1: Risks article formula with "d" as discontinuation stopping time and "a" as announcement stopping time.


What I'm always surprised by is that nobody is surprised by to the perfect FCA foresight. They already said in the past that they will make an announcement about non-representativeness in advance. That means that one day, they will be able to say with absolute certainty that at a future date, LIBOR will not be representative anymore. It is difficult to make predictions, especially about the future, but FCA does not only make prediction, they have certainty about it. Now they go even one step further in their super power, prefect foresight about foresight. Today they can already tell you that by the end of the year, they will have perfect foresight about a specific event that will happen one year later. Instead of press articles about spread impact of announcement date, which have always been very clearly stated and detailed qualitatively and quantitatively for several years by many people, including me, I would have expected articles on this "perfect foresight" claim and the arrogance linked to it. Script writer for fantastic and super-heroes TV series have a lot of imagination, but I don't remember one being as imaginative as inventing perfect foresight about foresight. Reality surpasses imagination! 

Added 2021-01-09: It appears that FCA don't have the superpower they claimed to have after all. 2021 has arrived, and no FCA announcement has been made. Not only don't they have perfect foresight, but they cannot even predict their own behavior!

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