London Interbank Offered Rate (LIBOR) Transition – Matters Arising

This essay discusses LIBOR based rates and how they are used to value financial instruments in the fixed income market. The essay also analyzes potential gaps that could be created by transitioning from LIBOR based rates that are forward-looking to alternative reference rates that are historical in nature. Finally, the essay proffers some suggestions on alternative methodologies and techniques that could be used to value fixed income should the world transition to a new set of rates that are entirely historical in nature. The main takeaway is that in order to ensure a seamless transition, market stakeholders need to work out modalities on the methodologies and techniques that will be used to value financial instruments going forward in order to prevent distortions to the financial system.