Good afternoof to everyone. I would like to create a portfolio following a multifactorial approach (I have been writing my master's thesis). As I would like to calculate a series of ratios (e.g. Sharpe ratio), I need a risk-free rate for the US market and I would like to use SOFR as an alternative to LIBOR. Now, I have downloaded the time series of the WEEKLY prices, how should I consider the SOFR? It is currently 0.09% but does it mean daily? Or is it yearly / monthly?

Thanks for your help!


SOFR quote is annualized rate.

  • $\begingroup$ where can I find this? I only found the daily value, or at 30/190/180 days. In any case, I changed the price series, using the monthly one. Do you think I can consider, at this point, the 30-day value of the SOFR that I found here apps.newyorkfed.org/markets/autorates/sofr-avg-ind to calculate the Sharpe ratio? $\endgroup$ – Chariot Black Nov 17 '20 at 15:57
  • 1
    $\begingroup$ The daily data is here: apps.newyorkfed.org/markets/autorates/SOFR $\endgroup$ – user42108 Nov 17 '20 at 16:54
  • $\begingroup$ With SOFR at 9bp, the difference between Sharpe with/without should be minimal. If I were to include a RFR in Sharpe calculation, I would use the return on cash that I could get if I were not invested. This could be EFFR, LIBOR or SOFR less some spread. I'm skeptical it even makes sense to include the RFR as the alternative to investing in a risky strategy is generally not investing in the RFR but in another risky strategy. $\endgroup$ – user42108 Nov 17 '20 at 17:01
  • $\begingroup$ thank you so much for the advice! $\endgroup$ – Chariot Black Nov 21 '20 at 15:44

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