Post-shock short-rate pricing

Post-shock short-rate pricing

The 2007–09 liquidity and credit crises included large basis spreads opening up between overnight collateralised instruments (for example, six-month Eonia) and non-collateralised fixings1 (for example, six-month Euribor). Deposits of the same maturity as fixings follow the same pattern. Yield curves built from instruments referencing these different rates demonstrate a significant basis (for example, building from Eonia swaps versus building from Euribor swaps). This means that new formulas are

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