Waterfall: Difference between revisions
imported>Doug Williamson (Add valuation context to 4th defnition.) |
imported>Doug Williamson (Add quote. Source: LIBOR page.) |
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Abbreviation for ''waterfall methodology''. | Abbreviation for ''waterfall methodology''. | ||
[title + house style for quote] | |||
From mid-2018 a new, uniform determination methodology, the “waterfall methodology”, by which each contributing bank calculates the rates it submits, was progressively introduced. The underlying interest - the market or economic reality that the benchmark seeks to measure - remains the same. | |||
The “waterfall” methodology refers to the three bases for a bank’s rate submission... the first practical method being used in any case according to the information available... | |||
The three bases in the LIBOR waterfall are: | |||
Level 1: Transaction-based | |||
Level 2: Transaction-derived | |||
Level 3: Expert judgement | |||
In summary, the new methodology is more rooted in actual transactions as far as possible. Using less “judgement” that can involve a (possibly unconscious) element of “smoothing”, contributed rates are expected to vary up and down more by small amounts each day. And, recognising the reality that banks short-term-fund in the wider money-markets now, rather just inter-bank, the range of transactions considered is being widened and this can mean small rate differences. | |||
Following the successful completion of the transition period, LIBOR is now, for each currency/maturity combination, the rate output as the arithmetic mean of the relevant panel banks’ waterfall-methodology based submissions, excluding the highest and lowest quartile of submissions. | |||
''The Treasurer's Wiki - LIBOR.'' | |||
Revision as of 08:29, 27 May 2021
1. Liquidation - claims.
The priority order of claims in a liquidation.
2. Liquidation.
The allocation of - usually limited - available funds in this priority order in a liquidation.
3. Allocating limited funds.
Any other ranked allocation of funds.
4. Risk-free rates - valuation.
Abbreviation for waterfall methodology.
[title + house style for quote]
From mid-2018 a new, uniform determination methodology, the “waterfall methodology”, by which each contributing bank calculates the rates it submits, was progressively introduced. The underlying interest - the market or economic reality that the benchmark seeks to measure - remains the same.
The “waterfall” methodology refers to the three bases for a bank’s rate submission... the first practical method being used in any case according to the information available...
The three bases in the LIBOR waterfall are:
Level 1: Transaction-based Level 2: Transaction-derived Level 3: Expert judgement
In summary, the new methodology is more rooted in actual transactions as far as possible. Using less “judgement” that can involve a (possibly unconscious) element of “smoothing”, contributed rates are expected to vary up and down more by small amounts each day. And, recognising the reality that banks short-term-fund in the wider money-markets now, rather just inter-bank, the range of transactions considered is being widened and this can mean small rate differences.
Following the successful completion of the transition period, LIBOR is now, for each currency/maturity combination, the rate output as the arithmetic mean of the relevant panel banks’ waterfall-methodology based submissions, excluding the highest and lowest quartile of submissions.
The Treasurer's Wiki - LIBOR.
