A reference rate is a rate that determines pay-offs in a financial contract and that is outside the control of the parties to the contract. It is often some form of LIBOR rate, but it can take many forms, such as a consumer price index , a house price index or an unemployment rate . Parties to the contract choose a reference rate that neither party has power to manipulate.
12-574: The Euro Interbank Offered Rate ( Euribor ) is a daily reference rate , published by the European Money Markets Institute , based on the averaged interest rates at which Eurozone banks borrow unsecured funds from counterparties in the euro wholesale money market (or interbank market ). Prior to 2015, the rate was published by the European Banking Federation . Euribors are used as
24-530: A reference rate for euro-denominated forward rate agreements , short-term interest rate futures contracts and interest rate swaps , in very much the same way as LIBORs are commonly used for Sterling and US dollar -denominated instruments. They thus provide the basis for some of the world's most liquid and active interest rate markets. Domestic reference rates, like Paris' PIBOR, Frankfurt's FIBOR, and Helsinki's Helibor merged into Euribor on EMU day on 1 January 1999. Euribor should be distinguished from
36-439: A similar concept to reference rates is used. Pay offs are not determined by a rate , but by possible events . In this case, the reference event has to be a very precisely defined credit event , to make sure there can be no disagreement on whether the event has occurred or not.. Typically the benchmark LIBOR is the three-month rate. Examples of reference rates for short-term interest rates are: This finance-related article
48-432: Is a stub . You can help Misplaced Pages by expanding it . Constant maturity swap A constant maturity swap ( CMS ) is a swap that allows the purchaser to fix the duration of received flows on a swap. The floating leg of an interest rate swap typically resets against a published index. The floating leg of a constant maturity swap fixes against a point on the swap curve on a periodic basis. A constant maturity swap
60-399: Is an interest rate swap where the interest rate on one leg is reset periodically, but with reference to a market swap rate rather than LIBOR . The other leg of the swap is generally LIBOR, but may be a fixed rate or potentially another constant maturity rate. Constant maturity swaps can either be single currency or cross currency swaps . Therefore, the prime factor for a constant maturity swap
72-453: Is the shape of the forward implied yield curves . A single currency constant maturity swap versus LIBOR is similar to a series of differential interest rate fixes (or "DIRF") in the same way that an interest rate swap is similar to a series of forward rate agreements . Valuation of constant maturity swaps depend on volatilities of different forward rates and therefore requires a stochastic yield curve model or some approximated methodology like
84-567: The British Bankers Association (BBA) as the average of the rates quoted by a large panel of banks, to ensure independence. Another example is that of swap reference rates for constant maturity swaps . The ISDAfix rates used are calculated daily for an independent organisation, the International Swaps and Derivatives Association , from quotes from a large panel of banks. In the credit derivative market
96-551: The London Stock Exchange Group , which has closed down operations in January 2022. Interest rate swaps based on short Euribors currently trade on the interbank market for maturities up to 50 years. A "five-year Euribor" will be in fact referring to the 5-year swap rate vs 6-month Euribor. "Euribor + x basis points", when talking about a bond, will mean that the bond's cash flows have to be discounted on
108-535: The Trans-European Automated Real-Time Gross-Settlement Express Transfer system ( TARGET ) is open. At 11:02 a.m. (CET), GRSS (Global Rate Set Systems) will instantaneously publish the reference rate on Refinitiv (ex. Reuters), Bloomberg and a number of other information providers which will then be made available to all their subscribers. The published rate is a rounded, truncated mean of
120-565: The less commonly used "Euro LIBOR" rates set in London by 16 major banks. A representative panel of banks provide daily quotes of the rate, rounded to two decimal places, that each Panel Bank believes one prime bank is quoting to another prime bank for interbank term deposits within the Euro zone, for maturity ranging from one week to one year. Every Panel Bank is required to directly input its data no later than 11:00 a.m. ( CET ) on each day that
132-566: The quoted rates: the highest and lowest 15% of quotes are eliminated, the remainder are averaged and the result is rounded to 3 decimal places. Euribor rates are spot rates , i.e. for a start two working days after measurement day. Like US money-market rates, they are Actual/360 , i.e. calculated with an exact daycount over a 360-day year. Euribor was first published on 30 December 1998 for value 4 January 1999. EUR Euribor futures are traded on Intercontinental Exchange (ICE) and on Eurex They were previously also traded on CurveGlobal, part of
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#1732775295481144-573: The swaps' zero-coupon yield curve shifted by x basis points in order to equal the bond's actual market price. The other widely used reference rate in the euro-zone is €STR , published by the European Central Bank . Reference rate The most common use of reference rates is that of short-term interest rates such as LIBOR in floating rate notes , loans , swaps , short-term interest rate futures contracts , etc. The rates are calculated by an independent organisation, such as
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