Benchmark reform goes non-linear

Terminating Libor will bring great challenges to the pricing of non-linear rate products

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Vladimir Piterbarg examines the impact of interest rate benchmark reform and the upcoming Libor transition on options markets. This article addresses the various modelling challenges the transition brings, with a specific focus on the impact on swaptions of the clearing houses’ discounting switch, and on the consequences of Libor transition for Libor-in-arrears swaps, caps and range accruals as typical representatives of a very wide range of Libor derivatives

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