Interest Rate Modelling in the Multi-Curve Framework Foundations, Evolution, Transition, and Implementation

A new standard in interest rate modelling, called the multi-curve framework, emerged after the financial crisis. The framework covers two important market features: the collateralisation of derivative trades and the spread between different rate benchmarks. This book starts from the collateral mechanisms and builds the full framework from the foundations through all the technical and financial details. It kicks off with the collateral discounting in all its variants: domestic cash, foreign cash, or other assets and then introduces the different benchmarks and their associated spreads. Following the discontinuation of certain benchmarks, part of the book is dedicated to the transition and the emergence of the overnight benchmark dominance in certain currencies. Based on the theoretical framework of the first chapters, the important curve calibration mechanism is analysed in detail. Many instruments are investigated with all their practical peculiarities. Most of the book is dedicated to the understanding of the “static” interest rate curves. The book’s last part deals with the building blocks of any dynamic model explaining their future behaviour and apply some of those models to the most liquid instruments. Based on more than 25 years of experience as a trader and quantitative analyst in the related markets, the author includes many details on implementation in libraries and using the framework in risk management, which will be of interest to traders, risk managers, quantitative analysts, and actuaries alongside professors, researchers, and students of banking, insurance, risk management, and quantitative finance. 

Chapter 1. Introduction.- Chapter 2. Collateral Framework.- Chapter 3. Benchmarks and the Multi-curve Framework Foundations.- Chapter 4. Curve calibration and Interpolation.- Chapter 5. Curve modelling.- Chapter 6. Transition.- Chapter 7. More instruments.- Chapter 8. Risk management.

Marc Henrard is a Managing Partner at muRisQ Advisory. Over the last 25 years, Marc has worked in various areas of quantitative finance including risk management, trading, software development, and quantitative research. He was formerly Head of Quantitative Research at OpenGamma, Head of Interest Rate Modeling for Dexia Group, Head of Quantitative Research and Deputy Head of Interest Rate Trading at the Bank for International Settlements (BIS) and Deputy Head of Treasury Risk also at BIS. Previously, he held several academic positions in Belgium, Italy, and the UK. Marc's research focuses on interest rate modelling, risk management, and margin models. He is an expert in the multi-curve framework, the impact of collateral, benchmark transition, in depth analysis of liquid derivatives, and market infrastructure (initial margin, quantitative impacts of regulation). Marc holds a PhD in Mathematics from the University of Louvain, Belgium.