the forward market model for term rates based on the new interest rate benchmarks

In response to the vulnerabilities unveiled during the 2008 financial crisis, established interest rate benchmarks, notably LIBOR and EURIBOR, are transitioning to transaction-based overnight risk-free rates (RFRs). This shift introduces modeling challenges distinct from traditional forward-looking IBORs. This research delves into the Forward Market Model (FMM) by Lyashenko and Mercurio (2019), a novel approach that integrates conventional interest rate modeling techniques to capture both backward and forward-looking RFR term rates. Utilizing refined zero-coupon bond definitions, the FMM addresses the challenges of adapting LIBOR-focused models to the emerging RFRs. Through empirical applications and sensitivity analyses, this study bridges the theoretical advances in RFR modeling with valuation and risk management applications. The findings offer insights for financial institutions navigating the evolving benchmark landscape, underscoring the FMM's potential as a robust tool for coherent valuation in the contemporary RFR-centric market environment.