Decomposing LIBOR in transition: evidence from the futures markets
Research output: Contribution to journal › Journal article › Research › peer-review
Applying historical data from the USD LIBOR transition period, we estimate a joint model for SOFR, Federal Funds, and Eurodollar futures rates as well as spot USD LIBOR and term repo rates. The framework endogenously models basis spreads between each of the benchmark rates and allows for the decomposition of spreads. Modelling the LIBOR-OIS spread as credit and funding-liquidity roll-over risk, we find that the spike in the LIBOR-OIS spread during the onset of COVID-19 was mainly due to credit risk, while on average credit and funding-liquidity risk contribute equally to the spread.
Original language | English |
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Journal | Quantitative Finance |
Volume | 23 |
Issue number | 6 |
Pages (from-to) | 959-978 |
Number of pages | 20 |
ISSN | 1469-7688 |
DOIs | |
Publication status | Published - 2023 |
Bibliographical note
Publisher Copyright:
© 2023 Informa UK Limited, trading as Taylor & Francis Group.
- Federal funds rate, Futures, LIBOR, Roll-over risk, SOFR
Research areas
ID: 358722346