Pricing Partners Releases the Multi Curve Method to Account for Market Dislocation in Interest Rates

Pricing Partners announced that the Price-it Library now supports the Multi Curves Method on yield curves to account for market dislocation in interest rates.

This announcement comes at a time when the spreads between EONIA, EURIBOR 1M, 3M, 6M and 12M have become major concerns, diverging from a few basic points to about a hundred during the climax of the crisis and stabilizing currently at about a few tens of basis points. Traditionally, users created as many curves as underlyings in order to accurately mark and price EONIA or EURIBOR 1M, 3M, 6M and 12M derivatives. With this new approach, the Multi Curve Approach, Pricing Partners users create a single, coherent curve based on a common discounting curve that relies on EONIA rates and various forwarding curves to account for the differences on each underlying. This new approach tends to spread in trading rooms and has been detailed and described by Bianchetti and Henrard in various publications.

Eric Benhamou, CEO of Pricing Partners and a former Goldman Sachs employee, said: “Having a consistent approach on different curves such as EONIA, EURIBOR 1M, 3M, 6M and 12M, has become a very big concern among market players. At Pricing Partners, our philosophy is to offer our clients the latest tools to coherently price and value according to the latest market practices. The addition of the multi Curves Method continues to strengthen our leading position in the field of pricing models.”