The price is wrong

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The turmoil in financial markets over the past two-and-a-half years has led dealers to rethink the way they price trillions of dollars worth of derivatives. Since mid-2007, unprecedented volatility has caused banks to move away from discounting future derivatives cashflows using Libor. Instead, dealers now say cashflows in collateralised trades should be discounted at a relevant overnight index swap (OIS) rate, while future cashflows in uncollateralised trades should be discounted at the rate at

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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