EURAXI can work with €STER to serve as a reference credit spread for European banking institutions to conduct credit pricing and risk management.
European AXI, or “EURAXI”, reflects by construction effective marginal funding cost and risk premia of European banks. It can be calculated under all economic conditions and adapts automatically to banks’ funding maturity structure. EURAXI can therefore coexist with €STR by complementing euro benchmark reform with a credit-sensitive and robust term index needed for efficient asset – liability risk management in the banking sector.
EURAXI is defined as a weighted average of credit spreads for unsecured Euro- denominated debt issued by European banks with maturities up to five years, with weights that reflect transactions volumes and issuance volumes.
Rama Cont, Chair of Mathematical Finance at the University of Oxford and co-author of the EURAXI paper said, “EURAXI is a robust transaction-based and credit-sensitive benchmark which avoids the drawbacks of previous quote-based benchmarks such as LIBOR and EURIBOR and can exist alongside the new risk-free rate benchmarks as an effective risk-management tool and reference for Euro fixed income derivatives”.
Susanna Saroyan, Senior Research Fellow at the Institute for New Economic Thinking, and the Oxford Martin School, at the University of Oxford said: “It’s crucial for financial institutions in the Euro area to be prepared and to have understandable and robust fallbacks at hand in the framework of the ongoing benchmark reforms. Though transition towards short term RFRs is advancing successfully worldwide, the design of appropriate term fallback rates still requires better understanding. I am therefore happy to contribute to this important question through my work on EURAXI.”
Marcus Burnett, CEO of SOFR Academy said, “I am very pleased about the publication of the EURAXI paper. A robustly defined Euro denominated credit spread will be helpful for Eurozone banks in an €STR-based economy and will also provide additional options for European policymakers if and when EURIBOR is discontinued. I am very grateful to Rama and Susanna, who are among the brightest academic minds in European financial markets, for lending their expertise to this important initiative.”
EURAXI reflects by construction effective marginal funding cost and risk premia of European banks. It can be calculated under all economic conditions and adapts automatically to banks’ funding maturity structure. EURAXI can therefore coexist with €STR by complementing euro benchmark reform with a credit-sensitive and robust term index needed for efficient asset – liability risk management in the banking sector. The EURAXI design is inspired by the approach originally outlined by academics from the Stanford Graduate School of Business and the Australian National University.
Resources
- Academic paper | “EURAXI: a benchmark for Euro credit spreads” paper co-authored by Susanna Saroyan who is the Senior Research Fellow at the Institute for New Economic Thinking and the Oxford Martin School, and Rama Cont who is the Professor of Mathematical Finance at the University of Oxford, is available for download here.
- Press Release | SOFR Academy welcomes publication of “EURAXI: a benchmark for Euro credit spreads” paper by University of Oxford academics, available in English, French and German.
- Risk.net article | ‘Euro Axi rate proposed as Euribor fallback,’ available here.
- Risk.net article | ‘Refinitiv beefs up term €STR with cleared LCH swaps,’ available here.
- SOFR Academy has issued a Request for Proposal (RFP) for a Vendor to Publish and Administer European Across-the-Curve Credit Spread Indices (EURAXI) which work in conjunction with the Euro short-term rate (€STR), available here.
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Have a question or feedback on European AXI? Please contact us.
SOFR Academy supports near risk-free rates such as SOFR, €STR and the Chinese Depository-Institutions Repo Rate (DR). Over time, we also support robustly defined across-the-curve credit spread supplements such as AXI and FXI which can be used in conjunction with risk-free rates. SOFR is published by the Federal Reserve Bank of New York (The New York Fed) and is used subject to The New York Fed Terms of Use for Select Rate Data. The New York Fed has no liability for your use of the data. Neither AXI or FXI are associated with, or endorsed or sponsored by, The New York Fed, or the Federal Reserve System.
SOFR Academy, Inc. reserves all rights in the methodologies and outputs disclosed in this document, the white paper, the updates to the white paper and on SOFR Academy, Inc.’s website, and in the copyright in this document, the white paper, the updates and on SOFR Academy, Inc.’s website. SOFR Academy, Inc. holds the exclusive word-wide rights to commercialize the intellectual property (IP) associated with Across-the-Curve Credit Spread Indices (AXI)TM and the Financial Condition Credit Spread Indices (FXI)TM, this includes but is not limited to literary work, the algorithm / code, all trade secrets, know-how, trademarks, designs, copyright, whether or not registered or registrable or having to undergo any other process for grant, registration or the like. None of these rights may be used without a written license from SOFR Academy, Inc.
The Euro Short-Term Rate (“€STR”) calculated, maintained and published by the European Central Bank (“ECB”) on its website and via the Market Information Dissemination (“MID”) platform and the ECB’s Statistical Data Warehouse, is available free of charge subject to the ECB’s Terms of Use available at ecb.europa.eu. The ECB is the administrator of the €STR benchmark and the intellectual property owner of the “€STR” mark. The ECB has overall responsibility for providing €STR which reflects the wholesale euro unsecured overnight borrowing costs of euro area banks. The ECB has no affiliation with SOFR Academy, is in no way responsible for the potential calculation, maintenance, or publication of the EURAXI prototype and shall in no event have any liability for any use of, or reliance on, the EURAXI prototype or any data included therein. The ECB in no way guarantees the timeliness, accurateness, completeness of, or fitness for a particular purpose and accepts no liability or responsibility for any loss, damage, expense or claim (including, but not limited to any direct, indirect or consequential loss, whether or not such loss is foreseeable and whether or not the ECB has been apprised of the use to which the rate or the information will be put), however arising, from reliance on, use of or inability to use any data or information in connection with €STR. EURAXI is not associated with, or endorsed or sponsored by the ECB.
Darrell Duffie who is The Adams Distinguished Professor of Management and Professor of Finance at Stanford Graduate School of Business, is a co-author of the proposal for AXI and FXI but has no related compensation and has no affiliation with SOFR Academy.
SOFR Academy, Inc. provides financial education and market data to empower corporations, financial institutions, governments, and individuals to make better decisions. The Firm’s panel of advisors includes academics from Tsinghua University, Harvard University, the University of California Berkeley, New York University, Oxford University and London Business School, as well as experienced financial services professionals. SOFR Academy is also driving the operationalizing of AXI and FXI as credit spread add-ons for near Risk-Free-Rates for use in lending and derivative markets. SOFR Academy is a member of the Asia Pacific Loan Market Association (APLMA), American Economic Association (AEA), the Loan Syndications and Trading Association (LSTA), the International Swaps and Derivatives Association (ISDA), the Bankers Association for Finance and Trade (BAFT) which is a wholly owned subsidiary of the American Bankers Association (ABA), and the U.S. Chamber of Commerce (USCC). For more information, please visit SOFR.org