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Technical Paper:How The End of Libor Will Impact Delta-1 Rates

The future of interest rate curves, pricing and risk models applied to Libor fallbacks for legacy trades based on the new family of interest rate benchmarks

The global financial industry is beginning to make preparations for the end of the London Inter-bank Offer Rate (Libor) by Jan 1, 2021. This event is certain to have a major impact on the industry and will require global markets to adapt to a new crop of benchmark interest rates. 

The first step of preparing for the post-Libor world involves the selection of alternative benchmarks.  Each country or economic zone will have their own choice – in some cases using relatively new benchmarks, such as SOFR (USD) and ESTER (EUR), and in other cases using established overnight rates like SONIA (GBP). The first hurdle is an imminent need to grow the associated markets linked to the new rates. As a result, industry standards for modeling interest rates curves will need to quickly adapt to these major changes in benchmark rates and their reference markets.

Download this techical paper to learn: 

  • How to handle interest rate curves for alternative benchmark rates in the absence of Libor
  • Some of the  new benchmarks, or spread adjustments, that are currently proposed to capture the risk of default
  • What will happen to the multi-curve approach when Libor curves are no longer calibrated across multiple tenors
  • Tips for pricing trades with fallbacks in a post-Libor era 
  • How the risk exposure for delta-1 products will be affected by the Libor fallbacks

*For an overview of this technical paper, please download our two-page summary linked below:

Download the Technical Paper