Assuming that Libor will fully transition to SOFR by the end of 2021. How are swap rates after 2021 currently priced to reflect this? For example, if I am looking at 5 year US swap rate, doesn't this reflect spot 3-month Libor and a series of eurodollar contracts? But if after 2021, Libor cease to exist, how is the market pricing this?

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    $\begingroup$ 'going concern' kinda assumption is used to price the current LIBOR products. At some point, the reference (LIBOR) will be replaced by the new RFR (say SOFR), and the expectation is there will be some adjustments at the point of switch to reflect the impact of the change on the valuation. Pls see the consultation paper for cash products here (and ISDA for derivatives referenced in there): newyorkfed.org/medialibrary/Microsites/arrc/files/2020/… $\endgroup$ May 2, 2020 at 18:17
  • $\begingroup$ LIBOR can be replaced by compounded SOFR rate, i.e. 3M daily compounded SOFR would replace 3M LIBOR. $\endgroup$ May 2, 2020 at 21:51


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