Keep It Simple - Notes on the Transition to New Interest Rate Benchmarks from a Quant Perspective

3 Pages Posted: 12 Sep 2018

See all articles by Claus Christian Beier

Claus Christian Beier

DZ Bank AG

Christian P. Fries

Ludwig Maximilian University of Munich (LMU) - Faculty of Mathematics; DZ Bank AG

Marius G. Rott

Independent

Date Written: August 17, 2018

Abstract

With the realization in the markets and the regulatory world that Interbank Offered Rates (IBORs) may not be as stable and robust as necessary to represent sustainable, global interest rate benchmarks, the search for alternatives has led to (secured or unsecured) overnight rates. The question of how term rates could be derived from these overnight rates - or whether they are necessary at all - has not been clarified yet. Several variants have been proposed. Nevertheless, with the first bond issuances on these overnight rates (notably, the SOFR-referencing bonds issued by Fannie Mae at the end of July) markets may opt for one of these variants and may forestall results devised by the various working groups on risk-free rates (RFRs) - or arguments as ours from the quant world.

Keywords: Interest Rate Modelling, Benchmark Rates, IBOR

JEL Classification: G12

Suggested Citation

Beier, Claus Christian and Fries, Christian P. and Rott, Marius G., Keep It Simple - Notes on the Transition to New Interest Rate Benchmarks from a Quant Perspective (August 17, 2018). Available at SSRN: https://ssrn.com/abstract=3247297 or http://dx.doi.org/10.2139/ssrn.3247297

Claus Christian Beier

DZ Bank AG ( email )

60265 Frankfurt am Main
Germany

Christian P. Fries (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Mathematics ( email )

Theresienstrasse 39
Munich
Germany

DZ Bank AG ( email )

60265 Frankfurt am Main
Germany

Marius G. Rott

Independent ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
316
Abstract Views
1,423
Rank
179,008
PlumX Metrics