I am reading SOFR Futures and Options by Huggins and Schaller . In chapter 2 , they described a portfolio of 3m and 1m sofr contracts as a hedge from FOMC meeting . The accompanying spreadsheet calculates sensitivity to level and jump but the values are hardcoded. Can anyone help me with the method to calculate such sensitivities ? Thank you !

enter image description here


1 Answer 1


You will observe that your 3month period runs from 16/mar/22 to 16/jun/22 (92 calendar days) and the FOMC period under consideration runs from 5/may/22 to 16/jun/22 (which is the relevant end point in this analysis) (42 calendar days).

42/92 = 0.4565

This already gets very close to the value in the spreadsheet.

It is also quite easy to demonstrate this is very close mathematically. Suppose that $d=1/360$ is a 1-day day count fraction and the overnight rate before the meeting is $r_0$ and the rate after is $r_1$ then the 3M rate, $r_{3m}$ is very closely related (ignoring weekends) by:

$$(m+n)dr_{3m}=(1+dr_0)^m(1+dr_1)^n - 1$$

where n is 42 and (m+n) is 92. Thus,

$$\frac{\partial r_{3m}}{\partial r_1} = \underbrace{\frac{nd}{(m+n)d}}_{\text{fraction}} \underbrace{(1+dr_0)^m(1+dr_1)^{n-1}}_{\text{compounding}} $$

  • $\begingroup$ Thank you for sharing the analysis.. I appreciate it $\endgroup$ Mar 27 at 11:39

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.