The Whys of the LOIS : Credit Skew and Funding Spread Volatility

Abstract

The 2007 subprime crisis has induced a persistent disconnection between the Libor derivative markets of different tenors and the OIS market. Commonly proposed explanations for the corresponding spreads are a combination of credit risk and liquidity risk. However in the literature the meaning of liquidity is either not precisely stated, or it is simply… (More)

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