Uncertainty surrounding how the industry will transition away from Libor and towards new risk-free rates (RFRs) is starting to dissipate. There is now clarity on legal dates and a clear idea of what a Libor replacement will look like.
In FINCAD’s newly released video, Christian Kahl, PhD and I discuss five of the major challenges of the Libor transition and the role that technology will play in affording financial firms a seamless transition.
The first of these challenges is operational in nature. For example, the new benchmarks proposed are backward-looking, as opposed to forward-looking rates, as Libor was. Dealing with this change will inevitably create issues with accurate cash management and liquidity management.
A second area of difficulty pertains to valuations. It is important that financial institutions are valuing their portfolios correctly with the upcoming changes in mind. Firms will need flexible tools that can enable them to easily build new reference rate curves, whether it be SOFRA, SONIA, OIS or ESTER. As such, software that can automatically calibrate curves and offers pre-loaded reference rate curves will help ease the transition.
Interested in learning the remaining three challenges of the Libor transition? See our video above. Also, be sure to subscribe to FINCAD’s YouTube channel to access more videos like these.
About the author
Senior Enterprise Development, EMEA | FINCAD
A key member of FINCAD's Enterprise Development team, Kate is responsible for enterprise sales and solution delivery for FINCAD’s UK hedge fund technology business, and for buy and sell side firms within Germany, Austria and Switzerland. Kate has a background in derivatives sales at UBS and structured products structuring at Investec Bank.