Marc Henrard - Multi-curve framework

LCH is proposing to changes the LCH Limited Rulebook. The details can be found at: https://www.lch.com/membership/ltd-membership/ltd-member-updates/lch-limited-rule-change-committee-10-january-2020 This post is a work of fiction, an extreme fiction. The official narrative is also a work of fiction, also an extreme fiction and consequently I feel allowed to write my own fiction about this very important topic. Reality is probably between the extremes of fiction. You can't have your cake and eat it too CCPs want fees related to risk management of large portfolios but at the same time want to get rid of the risk as soon as the risk is about to materialize. Default fund and margin haircut on the materialization of credit risk through default, default fund usage in case of bad management of their funds investment process, and more recently remove LIBOR risk as soon as there is a LIBOR discontinuation risk is about to materialize. This is this last point that interests us here. F...

ISDA has recently published a consultation on fallback for EUR-LIBOR and EUR-EURIBOR . In the consultation questions, there is a question about the data to use for the computation of the spread historical median. The question refers to EONIA and pre-ESTR data. From 1 January 2022, EONIA will not be a EU BMR compliant benchmark. Such a non-compliant benchmark cannot be used for the " determination of the amount payable under a financial instrument or a financial contract by referencing an index or a combination of indices " (quote from EU BMR). It appears it would imply that contracts referencing a spread fallback computed from  EONIA rates would not be EU BMR compliant and forbidden in the European Union after 1 January 2022. I asked to ISDA if they obtained an explicit written indication from ECB, ESMA and/or national regulators that using EONIA figures in the fallback wording to LIBOR/EURIBOR-linked transactions is acceptable under EU BMR regulation after 1 January 20...

I'm preparing my answer to the ISDA consultation on fallback for EUR-LIBOR and EUR-EURIBOR . One element that is missing in the proposed options is the fallback of EUR-LIBOR to EUR-EURIBOR. It is expected that EURIBOR will outlast LIBOR by several years. A natural, simple, requiring no change of term sheet, and with limited risk management impacts fallback is obviously to replace EUR-LIBOR by EUR-EURIBOR (plus a potential spread). Why would you not proposed one IBOR as a fallback option for another IBOR? If EUR-LIBOR fallback is done directly to ESTR and not to EUR-EURIBOR, we may at some stage see substantial movements in the basis spread between EUR-LIBOR and EUR-EURIBOR swaps. Those basis movements could be interpreted as a measure of the substandard nature of the proposed fallback. This could further reduce the incentive for users to sign the ISDA protocol, even for other currencies. They would see directly in the data, without needing any theory or model, to which extend the p...

IBOR transitions (mainly LIBOR transition for the moment) is a huge undertaking for the derivative markets. It implicates many market participants, from large dealer/broker to small end users. Everybody want the transition to be perceived as " fair ". Reading trough the regulator published notes, FAQ and letters, I notice that I don't have the same definition of " fair " than some regulators. This leads to my question in the title: How low is the regulators' bar? To illustrate my point, I will take two examples, one from the FCA and one from the CFTC . The italic texts below are extracts from the regulators and ISDA documents, the regular text are my comments. FCA The FCA published a " Questions and answers for firms about conduct risk during LIBOR transition ". Treating customers fairly when replacing LIBOR LIBOR discontinuation should not be used to move customers with continuing contracts to replacement rates that are ...

This is pure fiction. Any resemblance to real events, situations, or persons, past, present, or future may or may not be purely coincidental. Any resemblance to fictional characters is intentional! Pharaohs and Gods At the time, Egypt was ruled by Pharaohs. When becoming Pharaohs, the human beings were also becoming Gods. They joined the gods like Isis, Horus, Ra, and others. For some time they were both human beings and gods. When their human being bodies died, they were buried but they stayed god forever. The disturbance of the bodily remains of those gods induces well documented curses: the curse of the Pharaohs . Whoever open the God's tombs was cursed for life, usually a very short life. Libor: universal God The curse stroked back three millennia later when a new God emerged: Libor. By opposition to the Pharaohs, Libor was not born in a human body to become god. Libor was fully immaterial, a pure number; even if its representation by human started on a specific date ...

A year ago, I was reporting A two cent arbitrage - free options . When the minister in charge (the minister was then Kris Peters , now member of the European Parliament - Kris Peters ) of "financial products" and financial regulators ( FSMA ) is not a quant, you know you are heading for financial troubles. To make a long story short, since 1 December 2019, in Belgium for each retail transaction, you have a free option. If you pay in cash, the total price is rounded to the nearest 5 cents, if you pay by card, the total price is not rounded (it is a little bit more complex than that but for the sake of a short story, this is good enough). The arbitrage strategy is easy. If the total price of the purchases is ending by 1, 2, 6 or 7 cents, pay by cash and get a 1 or 2 cents discount. If the total price ends by 3, 4, 7 or 9 cents, pay by card and pay the exact price. In case of 0 or 5, do whatever is most convenient. With this strategy, on average (if the last figure of ...

Winter weather in Belgium, but good winter weather! Dry and warm enough for a reinvigorating 18 holes golf. And on top of the good air cake, my best score ever. Started on the hole 1 with an eagle and finished 17 holes later with a gross score of par +1. Enjoying my winter!