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University of Sydney Business School Industry Partnership Grant 2016

Australian Financial Markets Association (AFMA)

Interpolating and decomposing the BBSW Benchmark Rates: The role of Interbank Liquidity and Counterparty Risk

Eliza Wu


Project Summary

The aim of this project is to understand the drivers of Australia’s benchmark interest rates under varying market and economic conditions. The project will draw on proprietary data provided by AFMA to develop the following outcomes: (i) A report on the best practice for calculating unobserved BBSW tenors provided for industry and policy use; and (ii) A research paper that shows how the drivers of the credit and liquidity risk components of the BBSW rates change over time. The project is significant given the importance of the benchmark interest rates in pricing many financial instruments and will inform the current and future debates surrounding the setting of robust benchmark interest rates and the regulatory reforms needed.




$60,000 (AUD)