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Sep 26, 2022

Willow Tree: Risk Modeling for RFR under LIBOR

As financial markets transition from IBOR to SOFR, new valuation methodologies are emerging to replace the ones used to model forward-looking rates. For banks and asset managers using tree valuation to price interest rate contracts, especially those with early termination right by either holder and/or issuer, the Willow Tree method can relieve some of the challenges presented by other models.

May 18, 2022

Challenges & Future Developments for LIBOR Transition for ALM

In the years following the 2008 financial crisis, manipulation attempts by LIBOR panel banks, false reporting, and declining liquidity in interbank funding markets generated doubt in LIBOR benchmark rates, and ultimately led to plans for their replacement with more reliable benchmarks. Without backing by underlying transactions, LIBOR depended more on expert judgment than quantifying true bank funding cost, and huge volumes of derivatives and cash products referencing it was a concern. Alarmed regulators established new benchmark regulation (BMR), and alternative reference rates (ARR) or risk-free rates (RFR) that comply with the BMR were developed and recommended by national working groups of several jurisdictions.

Sep 15, 2020

Rethinking investment operations: 5 trends insurers can’t ignore

Between falling fixed-income interest rates and the quest for superior returns via alternative investments, insurers are constantly reevaluating their investment strategies. After the operational dislocation arising from COVID-19, they should also be looking at investment operations to make sure they have the resiliency to support their strategies in a more dynamic market. From talking with insurance industry clients and analysts, we’ve identified five fundamental trends that insurers need to be mindful of as they weigh their operational decisions.

Jul 22, 2020

Key challenges in transitioning from LIBOR to Risk Free Reference rate

The end of LIBOR is imminent and we are beginning to see significant volumes of new issuances of both derivatives and cash products referencing risk free reference rates (RFRs). The LIBOR transition period, which terminates at the end of December 2021, is designed for market participants to prepare themselves operationally, technologically and financially for the cessation of LIBOR. With less than one and a half years to go, there are still many questions regarding documentation, fallback language, standardization, term rates, spread application, lags/lookbacks, lockouts and more. Nevertheless, market participants must be able to accommodate both LIBOR and RFR-based transactions during the LIBOR transition period.

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