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LIBOR Transition Basis Risk Calculator


Your loan documents define what the replacement index is on your floating rate loan upon LIBOR’s discontinuation, whereas most LIBOR based hedges will fall back to SOFR as outlined in the ISDA agreement.  The main risk associated with the discontinuation of LIBOR is a mismatch between the fallback index on the loan and hedge – Basis Risk.  This mismatch could result in a lower or higher effective rate paid due to differing:

  • Fallback indices on the loan and hedge
  • Fallback effective dates
  • Risk free rate spread adjustments

This calculator analyzes the projected basis mismatch between your loan and hedge considering different fallback indices, effective dates, spread adjustments, and even different rate environments, all using real market data.

Note – if the fallback index, spread adjustment, and effective dates match on both the loan and hedge, there shouldn’t be any basis risk.