Libor switch calls for modelling overhaul, quants warn
All pricing, risk and valuation models will need to be changed to reflect the new rate
Members of the financial community tasked with finding an alternative to the discredited Libor benchmark have worked long hours developing a set of replacement rates. For another constituency – the quants responsible for using these new rates to reprice and revalue thousands of derivatives trades – the work is only just beginning.
But as the scale of the task becomes clearer, concerns are emerging over the impact of the new rates on pricing and risk management models. The rate switch will
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