IBOR Transition

Money market interest rates are at the very core of financial markets – they are highly important to all market participants as well as private individuals, companies, and governments.

This hands-on workshop will equip you to understand how money market rates (IBOR in particular) are used to price derivatives, as well as giving you insights into their related problems and the transition process to new indices.

The program begins by providing a brief overview of the history and problems of LIBOR, and moves on to explaining the roles of money market indices, yield curves, and discount curves. The latter part of the program focuses on how to manage the IBOR transition process – starting with the first transition process around the time of the financial crisis – and explores the next phase of movements away from IBOR (including SOFR). The impact on funding, trading books, and risk management, and documentation and execution issues are also covered.

This course is designed for anyone who is involved either in funding (borrowing or lending) or in using, pricing, or managing the risk of money market instruments or derivatives, in particular:

• Interest-rate/derivatives sales, traders, structurers, and quants
• Bank Treasury and other Asset Liability Management executives
• Corporate treasury executives and investment managers
• Central Bank and Government Treasury Funding managers
• Risk managers, finance, IPV professionals, auditors, and accountants

• Understand the role of money market indices and how to create yield curves and discount curves for use in derivatives pricing
• Gain insights into the IBOR transition process
• Understand the implications and the impact on funding, trading books, and risk management
• Become familiar with documentation and execution issues surrounding the IBOR transition process

Basic knowledge of Microsoft Excel and a general understanding of financial markets and money markets are assumed.

Comprehensive teaching on fixed income markets and bond maths takes place in the LFS Fixed Income Markets & Analytics course.

More advanced topics, including pricing/managing risk of interest rate futures, swaps, options, and cross-currency derivatives, are covered in the LFS Interest Rate Derivatives and Swaps course.

A Brief History of XIBOR Money Market Indices

• The fixing process
• LIBOR/EURIBOR through the financial crisis
• The ‘LIBOR fixing’ scandal and fall-out
• The Wheatley report and recommendations

Case Study: Analysis of the LIBOR manipulation and ‘lowballing’ scandal

LIBOR Transition #1 – The Rise of OIS

• Why OIS is the right choice for the discount curve
• Why OIS and LIBOR co-exist as a two-track system

LIBOR Transition #2 – The New RFRs

• What is wrong with the existing RFRs (EONIA, Fed Funds, etc.)?
• Why replacing LIBOR will be a major challenge
• Secured vs. unsecured
• Desirable features of a ‘better’ RFR

Introducing SOFR

• Calculation process for the daily fixing
• Fallback/replacement language for legacy LIBOR-linked transactions
• Creating synthetic term rates

Introducing ESTER

• How it differs from EONIA, EONIA-ESTER spread
• Likely MTM impact of the transition for end-users

RFR Transition Plans in Other Currencies (GBP, JPY, CHF)

Building Market Acceptance of the New Indices

• SOFR-linked new issues

Case Study: Analysis of recent EIB SOFR-linked FRN

SOFR Futures and Swaps

• SOFR Futures on CME (3mo and 1mo contracts)
• Settlement calculation at expiry
• SOFR swaps (outrights and basis swaps)
• Fallback provisions for floating-rate fixings and reference curves

Case Study: Settlement calculation for 3mo SOFR contract