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Frontiers in Quantitative Finance Seminar
Darrell DUFFIE (Stanford)

Title: New approaches to dynamic credit-spread benchmarks

Based on research with Antje Berndt and Yichao Zhu and work in progress with Zachry Wang

Abstract: Many banks suggest that floating-rate loans linked to new risk-free interest-rate benchmarks are inefficient because risk-free rates have muted sensitivity to bank funding costs. But credit-sensitive benchmarks such as LIBOR are being phased out because they lack a sufficiently large set of underlying transactions. A robust alternative benchmark approach is an across-the-curve credit spread index (AXI), an average of the credit spreads of wholesale bank funding transactions with maturities ranging from overnight to five years, weighted for transaction sizes and issuance volumes. This presentation illustrates AXI and explains the market friction associated with indexing loans and revolving credit facilities to interest rate benchmarks that do not include a dynamic credit spread.

Darrell Duffie is the Adams Distinguished Professor of Management and Professor of Finance at the Graduate School of Business, Stanford University. Prof. Duffie is one of the world's leading experts in quantitative finance and has made numerous contributions to mathematical modeling in finance, especially on the modelling of over-the-counter (OTC) markets. He has also been a thought leader on issues related to the regulatory reform of over-the-counter markets following the 2008 global financial crisis.

Jan 7, 2021 06:00 PM in London

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