Marc Henrard - Multi-curve framework

For more than a decade, collateral discounting as been the de facto standard for derivative valuation. The central technical concept of this approach is the expectation under a currency — but not collateral mechanism — dependent measure. That measure is denoted in part of the literature. This is the notation I used in my Multi-Curve Framework with Collateral paper in 2023. This is the paper that developed the details of the “collateral square” valuation, when the collateral is is an asset that can itself be used into a repo to obtain cash. The generic formula in that latter case is (originally described in formula 13 in the above paper). The measure X appears in the expectation and is central to the approach, based on replication. It mathematics, it is traditional to add some marker (like a tilde or a bar) on some symbols to indicate another object similar or generated from the first one. One symbol that I like is the "check", which I called when I was lecturing in fren...

IOSCO has issued a document called “Principles for Financial Benchmarks” in 2013. As such it acted as an (unofficial/unelected) lawmaker. On 3 July 2023, the same IOSCO issued a “ Statement on Alternatives to USD Libor ”. The Statement looks like a tribunal judgement from a trial with no public hearing, no witness, and no defense right from a tribunal with no mandate to judge. And publish on the day before Independence Day! Some personal comments on the document. Transparency The statement indicated “Administrators should consider whether to improve the transparency of their rates". The IOSCO document lack minimum transparency. It does not indicate in any way the “varying degrees of vulnerability of concern“ of the analysed benchmarks. The name of the benchmark are not even indicated. This creates a culpability by association to all non-SOFR benchmarks. The statement refers to a Review of Alternatives to USD Libor ; to my knowledge, the review itself is not available. The st...

If you read this, it means that the world has not ended! Good to know the world can exist without LIBOR. Actually some GBP-LIBOR fixing will still be published to the end of March 2024 and some USD-LIBOR will still be published to the end of September 2024 due to FCA use of “Article 23A benchmarks”. Maybe I penciled the wrong “end of the world date” in my calendar! New “real” LIBOR (by opposition to the one invented by FCA) fixings are not published anymore, but old fixings still exists. We can see almost 10 trillions of it in the LCH data of Outstanding IRS. In number for 30 June 2023 on USD 3-month tenor: LIBOR fixing 5.54543 CME SOFR Term Rate: 5.26936 ISDA Spread: 0.26161 “Synthetic” LIBOR: 5.54543 There is a 1.546 bps gap somewhere! Where would that be? According to market rumours, both LIBOR and CME SOFR Term Rate are representative market rate as of 30 June 2023. We can only conclude that ISDA Spread is not a representative market rate. Why it will be used fro...