Lois: credit and liquidity

The spread between Libor and overnight index swap rates used to be negligible – until the crisis. Its behaviour since can be explained theoretically and empirically by a model driven by typical lenders’ liquidity and typical borrowers’ credit risk. By Stéphane Crépey and Raphaël Douady

Ripples in water

Most fixed-income derivatives reference Libor or the euro interbank offered rate (Euribor), calculated daily at tenors up to a year as an average of the rates at which a panel of banks believe they can obtain unsecured funding. In the past, these were nearly identical to the overnight indexed swap (OIS) rates, which are calculated by compounding some rate reflecting the cost of unsecured overnight interbank lending, such as the federal funds rate or the euro overnight index average (Eonia) rate

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here