Waterfall methodology: Difference between revisions

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imported>Doug Williamson
(Add definitions. Sources: linked pages.)
imported>Doug Williamson
(Update for LIBOR transition.)
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Waterfall methodologies are designed to improve consistency and objectivity.
Waterfall methodologies are designed to improve consistency and objectivity.
:<span style="color:#4B0082">'''''Uniform determination methodology'''''</span>
: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 21:12, 25 April 2022

1. Project management.

A linear and sequential approach to project management.

Contrasted with agile methodology.


2. Risk-free rates - valuation.

Similarly predetermined steps and prioritisation in determining the basis of contributions to the calculation of risk-free interest rates.

Waterfall methodologies are designed to improve consistency and objectivity.


3. Other contexts.

Similar approaches in other contexts.


See also


Other links

LIBOR transition: EURIBOR fallbacks - ECB publishes recommendations, ACT Blog 18 May 2021

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