One of the main challenges of shifting from term is the switch from forward- to backward - looking rates . Industry groups are weighing up the merits of simple versus compound averaging to determine the best way to make the overnight RFRs work for products that previously relied on a term rate . (For additional information on this topic, contacts the authors or Daniel Budofsky, Joseph Fastiggi, Michael Reese or Russell DaSilva.) Once the preferred rate has been established , the operational issues of when and how interest is paid needs to be addressed . Conventions being developed include a payment delay , delay / suspension period , lookback / lag and other hybrid models . The industry working group for RFRs uses the lag convention .
One of the main challenges of shifting from term is the switch from forward- to backward - looking rates . Industry groups are weighing up the merits of simple versus compound averaging to determine the best way to make the overnight RFRs work for products that previously relied on a term rate . Once the preferred rate has been established , the operational issues of when and how interest is paid needs to be addressed . Conventions being developed include a payment delay , delay / suspension period , lookback / lag and other hybrid models . The industry working group for RFRs uses the lag convention .