Marc Henrard - Multi-curve framework

Jour de fête nationale en Belgique. J'ai la naiveté de croire à la conscience individuelle des élus, a la séparation des pourvoirs et une compréhension minimale de la logique élémentaire par les décideurs publics. Ces croyances ont été détruites en quelques lignes reçues dans un email d'un parti politique. J'ai écrit un mail a l'adresse "info@ps.be" à propos de choix politiques fait par les parlementaires affiliés au PS (Parti Socialiste). Le sujet de ce mail est sans importance pour la suite de ce post, le seul point a mentionner est qu'il était adressé au élus PS de la majorité au parlement Wallon à travers l'adresse email générique du parti. La réponse que j'ai reçue a été: On 21 Jul 2020, at 13:16, Info PS <info@ps.be> wrote: Cher Monsieur,   Votre mail nous est bien parvenu et nous vous en remercions. Le Gouvernement et le Parlement étant des pouvoirs distincts, et par respect pour la séparation de ceux-ci, nous vous invitons à vous ad...

The title of this post is the title of a note by three Fed authors: How Correlated is LIBOR with Bank Funding Costs? From the title and the resources available to the authors, especially in term of data, I was expecting something good. I have been disappointed. The disappointment is about what is said by also what is not said. The note is based on " funding cost ". For a quant like me, it is not very clear what their number means exactly. It is described as " annualized total interest expense/total liabilities ". As it is from official reporting (FR Y-9C) this may be based on accounting/accrual interest and notional amounts, not on real daily MTM and actual interests. My understanding is that a long term funding with fixed coupon bond would have the same " funding cost " for their full life. The cost would probably not include any hedging that the bank would have done for its interest rate risk. Moreover those cost seems to be measured on a quarterly basi...

A couple of weeks ago, I asked "Where is ESTR?". That question resonated with a legal journal. The blog and a subsequent interview were the starting point of an article in Practice Insight - IFLR. Practice Insight is a " news service for lawyers, tracking how financial institutions are implementing Europe's capital market rules " (subscription required). Since then the clearing volume for June have been published by LCH . The volume was around 72 bn, i.e. barely a third of what is was in January and February. With a couple of weeks to go to the "big bang", one has to wonder what will happen then. The volume since the creation of ESTR is reported in the graph below. No upward trend is visible. Note that the EONIA = ESTR + 8.5 bps is true only to end of 2021. This means that the market data for OIS EONIA swaps with maturities beyond that data, i.e. OIS 2Y to 30Y, cannot be used to infer the market data for ESTR. I still wonder how CCPs will obtai...

A recent comment in Risk describes some consequences of the selected fallback mechanism. The article is titled Beware of cliff edge in Libor fallbacks (subscription required). The comments can be split in several parts. One describes some issues related to LIBOR fallback that have previously been discussed with more details in my blogs and relates to the distribution of historical data and the median effect: LIBOR Fallback: a median in a crisis and Updates on LIBOR/ON spread . The second one is related to the impact of the discontinuation date. It is important to insist that the so called "cliff effect" is coming from the choice of the discontinuation date and happen on the announcement date, not the optical jump in fixing rate on the discontinuation date . Once the discontinuation date is known, there is no cliff-effect anymore, even if the fixing jumps (from LIBOR to fallback). That was described in Spread, transition period, cliff-effect and manipulation . As also disc...