gt news | APRIL 2012 | By Anna Barbashova, Client Solutions, Numerix

gt news published an article written by Numerix's Anna Barbashova of the Client Solutions Group, entitled, “Collateral Discounting: Rethinking the Interest Rate Pricing Framework from its Basic Concepts.”

The article is a case study representing how collateral discounting and the impact of standardization in the market is adding a whole new level of complexity when it comes to derivative pricing and risk management. Market participants are seeking a deeper understanding when it comes to the potential consequences of moving to collateral discounting.

The case studies in the article clearly demonstrate the substantial divergence in single- and multi-curve pricing and risk calculation outcomes. We come to see that the entire interest rate pricing framework needs to be rethought and carefully reviewed from its basic concepts, from curve stripping and volatility surfaces to modeling and pricing, to calibration and risk management valuations.