Benchmark transition basis risk
FRM Part 2 glossary · Current Issues
Definition
Residual mismatch created when contracts, assets, hedges, and funding migrate from one reference rate to another differently.
Benchmark transition basis risk in plain English
A fixed LIBOR fallback spread cannot recreate LIBOR’s time-varying bank-credit component. Institutions can therefore retain funding-basis and hedge-basis exposures after legal conversion.
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