Questions tagged [sofr]

The Secured Overnight Financing Rate and the transition from Libor to SOFR.

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0 votes
1 answer
139 views

Convexity adjustment doubt

So this the question and the answer to the first one states that only the 5 year swap rate will be adjusted for convexity and the answer to the second one states that neither of the rates will be ...
1 vote
0 answers
125 views

Interpreting SOFR OIS Curve from CME

I have a doubt regarding the daily SOFR OIS Curve published by CME. https://www.cmegroup.com/trading/interest-rates/cleared-otc-sofr-swaps.html#sofroiscurve If we refer to the curve dated 22 Jul 2022.....
9 votes
1 answer
192 views

What is the market standard for IR option pricing when moving to SOFR

From books it looks like market standards to price IR options, like swaptions, are SABR, LMM or mix of the two (SABR-LMM). But LMM models the forward LIBOR rate. What will happen to it once LIBOR ...
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4 votes
0 answers
116 views

Payment Delay Convexity Adjustment Formula for RFR Rates

For Libor we have the following Convexity adjustment formula for payment delay (under normal model) $$CA = P(0,T_e,T_p)\rho\sigma_e^L\sigma_p^L\Delta_e^p(T_s-t_0)$$ where $T_s$ is the period start ...
3 votes
0 answers
116 views

SABR LMM for RFR

Is there a research showing a way to use SABR LMM with new RFRs such as SOFR, i.e. pricing exotic path-dependent RFR derivatives with volatility smile and skew? I'm aware that Looking Forward to ...
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4 votes
1 answer
618 views

Term SOFR rate formula

The following website gives the specifications of the CME Term SOFR reference rates: CME Term SOFR. Point 1 in the link above specifies that the tenors that are currently supported are 1m, 3m, 6m, and ...
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1 vote
1 answer
293 views

Pricing caps/floors on backward-looking USD SOFR with forward-looking LIBOR model

The payoff of a cap/floor is calculated as a payoff of constitutient caplets/floorlets. The SABR volatility model has the implied volatility approximations of Hagan et al. $$\sigma^f_{IV}\approx \...
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3 votes
0 answers
236 views

OIS floating-floating cross-currency basis swap

I'm trying to understand whether notional resets on a floating-floating cross-currency basis swap play a role or not when the coupon payments are SOFR-based (with no spread) and they are discounted ...
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0 votes
0 answers
84 views

What rates does CME use for the SOFR futures settlement prices

I am reading CME Methodology for SOFR Future settlement calculation. The calculation seems to be straight forward but I am confused about the data CME uses for settlement price. I am assuming it is ...
1 vote
2 answers
125 views

SOFR - Notice of Payment

I am reading SOFR USER Guide - https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/Users_Guide_to_SOFR.pdf I am having trouble understanding SOFR payment in arrears, especially lockout ...
2 votes
0 answers
102 views

The fate of Eurodollar futures post LIBOR cessation

It's my understanding that 3-month USD LIBOR will continue to set until June 30, 2023. What will happen to CME (3-month) Eurodollar futures after LIBOR is no longer published? Will they use fallback ...
2 votes
0 answers
207 views

Replacement for LIBOR Market Model (LMM)?

With the transition from LIBOR to SOFR, will the LIBOR Market Model be replaced by a new model? Perhaps this has already happened. If yes, what is this new model? If not, will the LIBOR Market ...
5 votes
1 answer
271 views

Market convention for building the front-end of the SOFR discounting curve

In SOFR Discount Curve Construction in Nov 2021, @dm63 does an excellent job describing the way to build the SOFR discount curve. A few questions: What is the market convention for building the ...
4 votes
1 answer
251 views

USD swaps trading post LIBOR: the current state of the world (January 2022)

The USD interest rate swaps market has been transitioning from LIBOR to SOFR for some time. In the "old days" when swaps reset against LIBOR underlyings, there were a few "market ...
1 vote
0 answers
65 views

Estimation of RFR payoffs of flavor Look-back with NO observation period shifts

With the new RFR swaps (Say $IRS Fixed to compounded SOFR), there are several adjustments that can be done to allow some room for the coupon on the floating leg to be known a couple of days ahead of ...
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0 votes
1 answer
121 views

Is an 18 month OIS a bullet?

I have been looking at SOFR/fixed swaps. On Bloomberg I found USOSFR1F which is the 18 month tenor on the SOFR OIS curve. My understanding is that SOFR OIS pays annually. When bootstrapping to get a ...
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7 votes
1 answer
885 views

SOFR Discount Curve Construction in Nov 2021

On July 29, 2021, the Alternative Reference Rates Committee (ARRC) formally recommended the forward-looking term rates based on SOFR published by the CME Group. CME currently publishes Term SOFR for ...
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0 votes
1 answer
161 views

which market instruments are used to strip the SOFR curve under 1 year?

which instruments are used to strip the SOFR curve for the short term of the curve(below 1 y) ? there are no swaps with maturity under 1 year, right? thanks
11 votes
2 answers
459 views

LIBOR replacement in client products and prospective pricing

I am asking whether the industry, or single banks, have made up their minds already on how to replace the 'missing' interbank risk compensation component in their variable rate credit products when ...
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2 votes
2 answers
284 views

How to account for the credit spread ( e.g. LIBOR + 2%) when using the Multicurve Methodology in valuing a Swap

When valuing an Interest rate swap, counterparties will typically issue the contract at a Libor + credit premium, e.g. Libor +2%. When valuing a swap, we require a LIBOR forward curve and Discounting ...
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2 votes
0 answers
100 views

Which SOFR rate to use and when?

When looking at the actual daily values provided by the SOFR API it's a bit confusing when/where to use which values given they provide two sets of values with different dates, SOFR on a T-1 basis and ...
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1 vote
1 answer
125 views

Overnight Term rate

I have come across this page from CME which provides O/N rate for various terms: https://www.cmegroup.com/market-data/cme-group-benchmark-administration/term-sofr....
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2 votes
1 answer
411 views

Compounding arrear SOFR Forward rate/curve

As per ISDA protocol and supplements, they stated that the fallback rate to be used on legacy derivative contracts is the compounding in arrears SOFR rate (based on a 2-day backshift) + a fixed spread ...
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3 votes
3 answers
497 views

Convexity Adjustment of Daily Compounded Swap under Hull-White Model

I am working on a problem that deals OIS daily compounded swap under Hull-White 1-factor model. I am struggling with pricing the floating leg, on a delayed payment date: $E^{T^p}_t[\prod_{i=0}^{n-1} (...
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0 answers
102 views

Estimating SOFR daily rate from a given curve

Goodday. May i know how can i estimate those fixing rate in the yellow cell, with the curve given on the left? Would my step below work 1.perform linear interpolation to find the rate e.g. the fixing ...
3 votes
2 answers
291 views

SOFR Transition

I have few doubts regarding transition from IBOR to SOFR rates. How will the method of calculating/estimating curve rates change after changing to SOFR? Will there be any change in valuation ...
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2 votes
1 answer
658 views

RFR boostrapping using RFR OIS: Is convexity adjustment technically necessary?

For single-curve RFR bootstrapping, such as a SOFR-based discounting curve bootstrapped strictly using SOFR fixed-float OIS, I am trying to understand if convexity adjustments are technically ...
8 votes
2 answers
800 views

Is SOFR to replace LIBOR or Fed Fund Rate or both

I am a bit confused on what is going on regarding the new benchmark rate SOFR. My understanding is that SOFR is to replace Libor. However, I also get information on Fed fund OIS discounting is ...
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0 votes
1 answer
283 views

How to Validate and Test a Discount curve (i.e. SOFR, LIBOR, ESTR)

Let's say an Interest Rate/Discount Curve (SOFR, ESTR, LIBOR or any other) is bootstrapped using the standard inputs and market quotes for Cash, Futures, Bonds/Swaps. What are the metrics to be looked ...
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0 votes
1 answer
203 views

Understanding Spread, SOFR - US Treasury [duplicate]

I am reading about USD LIBOR transition to SOFR (Secured Overnight Financing Rate). Here, I was reading about key differencies between both rates. I would like to bettter understand relationship ...
2 votes
2 answers
640 views

Repricing SOFR Quotes and Non-Zero NPV

I generated/calibrated a SOFR Curve using Quantlib Python and would like to know why when repricing the swaps have non-zero NPVs. Appreciate any assistance. Thank you. Parameters ...
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4 votes
1 answer
346 views

Current liquidity of USD OIS-SOFR Swaps

We have now moved to discounting using OIS-SOFR swaps on cleared products and SOFR products in general have picked up in liquidity since last time this question was asked. I'd therefore like to ...
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2 votes
1 answer
1k views

Libor transition: Building SOFR discount curve

As I understand that after 2023 the Libor will be discontinued and OI rates like SOFR will ...
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0 votes
2 answers
112 views

US overnight swaps (OIS)

Can you please confirm if the underlying rate of US overnight indexed swaps is SOFR or Fed funds?
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1 vote
0 answers
431 views

SOFR - calculation of the volume-weighted median and percentile

Federal Reserve Bank of New York web page provides some information on the computation of the SOFR rate. Part 1 According to this webpage, the SOFR is calculated as the volume-weighted median: "...
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2 votes
1 answer
649 views

DV01 on LIBOR vs. SOFR basis Swaps

If I had entered into a USD 10mn pay SOFR, receive 3M LIBOR swap with a 5yr maturity, I would have had a positive NPV of about 80k by the beginning of March due to the massive drop in SOFR (1.55 to 0....
2 votes
1 answer
170 views

Swap Spread Arbitrage & Rates/STIRT Vol

Concerning the classic swap spread arbitrage trade where you (as far as I understand it): Buy a treasury and borrow in GC repo, paying repo rate and funding the haircut in short term unsecured ...
3 votes
1 answer
209 views

Compare equity option volatility under SOFR vs LIBOR

We know that after the big bang from LIBOR to SOFR, LIBOR will eventually disappear. This brings up one question that I do not have a clue to answer: How to evaluate derivative in a consistent manner ...
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1 vote
2 answers
657 views

Theoretical fair value of SOFR 1M and 3M Future contracts?

The fair value of Eurodollar future contracts is calculated using the no arbitrage pricing and the spot curve for LIBOR. How does one compute the theoretical fair value of 1M and 3M SOFR Future ...
0 votes
1 answer
74 views

how to use SOFR as risk free rate in portfolio construction

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. ...
9 votes
3 answers
757 views

LIBOR Cessation: Construction of Term-RFRs as LIBOR Fallbacks; Forward vs. Backward Looking

This question emerged from comments in this feed: OIS rate to build Term structure. I was wondering how the float leg of an IRS will look like in a post-LIBOR world. Assume the following time-line, ...
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4 votes
2 answers
2k views

Difference between OIS Rate and Risk-Free Rate

What exactly is the difference between the fixed rate of an OIS and the risk-free rate in that currency. For example, in the US the OIS rate vs. risk-free rate SOFR or in the UK the OIS rate vs. the ...
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6 votes
1 answer
413 views

Transition to SOFR Swaps and single curve pricing

As in the US there is a push to replace IBOR based swaps with SOFR rate does that mean that SOFR swap pricing will return to using a single curve framework as LIBOR swaps did pre the financial crisis?
4 votes
2 answers
1k views

Replacing USD OIS discounting based on FED Funds Rate with SOFR discounting

Slightly related to my other question (The exact mechanics of USD OIS Swaps: replacement of USD Libor by SOFR) but nonetheless, this is a separate topic: US banks fund themselves via EFFR (Effective ...
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5 votes
3 answers
2k views

The exact mechanics of USD OIS Swaps: SOFR, EFFR & Libor cessation

EDIT 2020-11-17: thank you to @user42108 for the link to OpenGamma conventions PDF in his answer below. The PDF is comprehensive and explains the mechanics of USD OIS Swaps based on Effective Federal ...
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0 votes
2 answers
4k views

Does the USGS Holiday Calendar - used for SOFR Fixings - include Good Friday

Interest rate derivatives indexed on SOFR use USGS as the fixing calendar, which is defined in the FpML specs as: U.S. Government Securities Business Day (as defined in 2006 ISDA Definitions Section ...
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1 vote
1 answer
258 views

How are SOFR futures contract quotes determined?

I am currently conducting a research on SOFR and have a small question. Suppose I am in June right now and on the CME website I see SOFR Futures quote for the month of September to be 98.6786. I wish ...
5 votes
0 answers
77 views

SOFR transition impact on numerical efficiency

As the SOFR transition kick in, the libor insturments and derivatives link to SOFR which poses natural challenge for numerical methods such as lattice, monte carlo and finite difference, where people ...
3 votes
0 answers
169 views

Libor transition to SOFR - swaps after 2021

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 ...
2 votes
1 answer
146 views

SOFR Discounting & Price Alignment Transition

CME Group is planning to migrate the discounting to SOFR from Effective Fed Funds Rate (EFFR). Below is the link to their article: https://www.cmegroup.com/education/articles-and-reports/sofr-price-...
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