RT Journal Article
SR Electronic
T1 Term Risk-Free Rates: Methodologies, Challenges, and the Future
JF The Journal of Derivatives
FD Institutional Investor Journals
SP 30
OP 45
DO 10.3905/jod.2022.1.144
VO 29
IS 3
A1 Xi (Figo) Liu
A1 Yudi Bai
YR 2022
UL https://pm-research.com/content/29/3/30.abstract
AB After the global financial crisis in 2008–2009, the transition from LIBOR to risk-free rates (RFRs) began. As the transition heads into the end game, term RFRs have become one of the most critical tasks to guarantee the success of the transition. In this review article, we present different methodologies of publishing term RFRs, compare their features, and raise potential concerns. Specifically, we display practical examples that demonstrate challenges brought up by publishing and referencing term RFRs. We conclude that the “engineered” term RFRs do not fully achieve the goals of the LIBOR transition. At the end, we discuss alternatives and the future of term RFRs. We hope this review article can serve as a caveat and cautionary document for regulators and market participants who are interested in interacting with term RFRs.