Marc Henrard - Multi-curve framework

Risk published today an article titled " Cherry-picking fears [...] Isda protocol and traders warn of gaming the system " Some extracts of the article are: "[...] may have realised that signing left them in a difficult commercial position as they’d effectively made a free offer for their counterparties to adhere to [...] if and when it suits them,” says [...]. “Yet those banks couldn’t force anyone to adhere or agree bilaterally to [...] – so the protocol was operating on a one-way basis [for them].” this means the signed-up banks have essentially given clients a free option that allows them to cherry-pick by working out if they’re going to win by adhering to the protocol or not. “Imagine you have a large portfolio involving two counterparties who are hedging each other, and your risk-sensitivity exposure is at zero. You have $1 billion coming in on one side and $1 billion coming out on the other side. You’re thus perfectly hedged – until one counterparty suddenly stops ...

Over the last couple of years, I have publish several technical working papers and opinion about the LIBOR fallback. The proposed ISDA fallback mechanism is composed on two parts: a floating rate and an adjustment spread. As demonstrated for a long time, the floating rate mechanism is ill-designed. I refer to my post on CCPs steering away from it . I have also for a long time warned about the spread in the LIBOR fallback, e.g. in an opinion published in Risk.Net: Signing the LIBOR fallback protocol: a cautionary tale . The spread is a technical mechanism to have a rate, but is certainly not fair in any sense of the term for legacy contract. Unfortunately up to now it was difficult to have a direct reference to make the spread more fair in USD. In EUR one could refer to EUR-EURIBOR and in JPY one could refer to JPY-TIBOR. In USD there is since a couple of years the IBA Bank Yield Index but it is not yet an official benchmark, only an indicative information. Today, Bloomberg has announ...

The Bachelier Finance Society has published today its BFS-Newsletter Vol. 13 No. 1 I had the honor to be invited to write the Leading Article for the newsletter: Failures in Benchmark Transitions

Below are my answer to the "Public consultation by the working group on €STR-based EURIBOR fallback rates". As previously mentioned, I  believe that the consultation was deeply flawed with incorrect statements and unproven claims. Some technical analysis of one of the incorrect technical description of one of the conventions is available in a working paper available on a preprint server: Description of overnight floaters with principal adjustment and its advantages . An earlier version of the document has been sent to the official ECB email address related to the RFR working group. No answer has been received yet, which I presume means that the agree with the analysis but do not wish to comment about it. The answer to the consultation had to be provided in an Excel sheet. This means that the answers are difficult to write and difficult to read. Moreover the mechanism limited the potential answers to some of the questions to a restrictive predetermined set. I have done my bes...

Monthly review of ESTR and SOFR volumes. LCH publishing its monthly overnight data with one week delay, I can produce the graphs only today. ESTR picking up slightly at LCH. Above February level for the first time. SOFR retracing from November hights at LCH but ratio LIBOR/SOFR (ISDA data) holding above 2% for 4 weeks in a row.

Julian Assange: Wikileaks founder extradition to US blocked by UK judge   (BBC, with cookie wall) No extradition is a good decision. Unfortunately, the decision does not take out the extradition risk, only delays it and maybe just transfer it to another country. The decision motivation seems wrong to me. The main issue is not a " risk of suicide ", even if it exists. The sufficient issue with the procedure itself is that there is no crime or wrongdoing on Mr. Assange side, only journalist work done under freedom of press and opinion that should be protected in the UK, in the US and in all democratic countries. The fact that all the elements published contained truth and only truth and are of public interest is not refuted. That should be enough for it to qualify as journalistic work. My new year wishes for 2021 are more transparency and more freedom.  Freedom of opinion and freedom of press are both more and more in danger everywhere. This is my opinion and I hope I'm st...