AMS Seminar w/ Fabio Mercurio (Bloomberg) on Zoom

Title: Looking Forward to Backward-Looking Rates: A Modeling Framework for Term Rates Replacing LIBOR
 
Abstract: LIBOR and other similar IBOR rates represent the cost of short-term funding among large global banks, and are the reference rates in millions of financial contracts with a total market exposure worldwide of 400 trillion dollars. Lack of liquidity in the unsecured short-term lending market, as well as evidence of LIBOR manipulation during the 2007-09 credit crisis, led regulators to identify new rate benchmarks. In this talk, we introduce and model the new new interest-rate benchmarks and their compounded setting-in-arrears term rates, which will be replacing IBORs globally. We show that the classic interest-rate modeling framework can be naturally extended to describe the evolution of both the forward-looking (IBOR-like) and backward-looking (setting-in-arrears) term rates using the same stochastic process. We then introduce an extension of the LIBOR Market Model to backward-looking rates. Applications will be presented and numerical examples showcased.
 
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Topic: AMS Department Seminar (Fall 2020)
Date: Sep 17, 2020 01:18 PM Eastern Time (US and Canada)
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