IBOR Transition: Implications of COVID-19 on Spread Adjustments from a Conduct Risk Perspective
By Maximilian Beckmann, Stefan Wingenbach, Peter Woeste Christensen
A featured article of our July 2020 edition of PRMIA's Intelligent Risk quarterly newsletter
ISDA has played the central role in developing the framework to end LIBOR. A long and transparent process has resulted in a seemingly simple approach. The LIBOR benchmark will be replaced by an Adjusted Reference Rate (ARR) plus a fixed Spread Adjustment. Usually, the ARR is the compounded risk-free rate (RFR). The spread adjustment reflects a compensation for risk premiums embedded in LIBOR compared to a risk-free rate.
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