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SARON hedging strategies

Hedging of SARON exposure, Part II

On 5 March 2021, the Financial Conduct Authority (FCA) announced the official dates of the cessation and loss of representativeness of the LIBOR rates. As a result, 31 December 2021 will be the last day on which the CHF LIBOR will be published. During the last months, a multitude of informative documents were provided by the Alternative Reference Rates Committee (ARRC) and the International Swaps and Derivatives Association (ISDA). As a follow-up from the previous article Hedging of SARON exposure, Part I: Explanatory power of SARON term and actual rates, this article assesses the different compounding methodologies with respect to hedging strategy.

Can machine learning predict the probabilities of default?

According to Moore’s law, computing power doubles up each two years. This performance increase in computing power makes machine learning increasingly efficient each year, and widely applicable. But does this also apply to credit risk issues?

Explanatory power of SARON term and actual rates

Hedging of SARON exposure, Part I

On 5 March 2021, the Financial Conduct Authority (FCA) announced the official dates of the cessation and loss of representativeness of the LIBOR rates. As a result, 31 December 2021 will be the last day on which the CHF LIBOR will be published. During the last months, a multitude of information were provided by the Alternative Reference Rates Committee (ARRC) and the International Swaps and Derivatives Association (ISDA). This article aims to provide an analysis of the prediction power of term and in advance rates.

Impact of OIS switch of fair value derivatives

Barely a day goes by, it seems, without an email, a post, or a newsflash from one of the many acronyms (ECB, BOE, FED, FCA, ISDA…) of the LIBOR reform players. We are getting closer to the deadline and there is still the same uncertainty on what the post-LIBOR market will be like. What will the transition look like? Will my margin calls be impacted? Will the fixed rate currently paid be changed? Will interest payment in arrears really become the norm for the loans and facilities too?

IBOR transition: fallback solutions in illiquid markets

At the end of this year, the LIBOR we currently know will be discontinued. For some currencies, the calculation methodology will be adjusted, while others will move to a brand new or alternative risk-free rate (RFR). This also holds for the dollar LIBOR, which will be replaced by the Secured Overnight Financing Rate (SOFR). However, some currencies use the USD LIBOR as a basis for their current reference rates, mainly due to liquidity concerns. Therefore, these FX implied rates face an additional challenge.