Questions tagged [sofr]

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

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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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10 votes
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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, ...
KevinT's user avatar
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9 votes
1 answer
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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 ...
Goo Gle's user avatar
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8 votes
2 answers
1k 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 ...
Peaceful's user avatar
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7 votes
1 answer
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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 ...
JoeBass's user avatar
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7 votes
1 answer
727 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?
Skrrrrrtttt's user avatar
5 votes
3 answers
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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 ...
Jan Stuller's user avatar
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5 votes
1 answer
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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 ...
equanimity's user avatar
5 votes
1 answer
2k views

SOFR term structure

Recently I have been going through a lot of documents for SOFR (Secured Overnight Financing Rate) as there is a SOFR implementation in my organization. I am not able to understand how SOFR term ...
user44208's user avatar
5 votes
1 answer
1k views

Libor to SOFR transition Yield Curve Construction

With the imminent transition from LIBOR to SOFR next year, what are the data points practitioners are using to construct a yield curve? Also, since LIBOR implicitly took into account credit risk of ...
AlRacoon's user avatar
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5 votes
0 answers
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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 ...
HoldBreath's user avatar
4 votes
1 answer
307 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 ...
equanimity's user avatar
4 votes
2 answers
4k 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 ...
Nhat's user avatar
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4 votes
1 answer
2k 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 ...
Jan Stuller's user avatar
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4 votes
2 answers
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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 ...
Jan Stuller's user avatar
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4 votes
2 answers
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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 ...
lee lo's user avatar
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4 votes
1 answer
404 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 ...
Jan Stuller's user avatar
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4 votes
0 answers
281 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 ...
user62031's user avatar
3 votes
2 answers
406 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 ...
Novice's user avatar
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3 votes
3 answers
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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} (...
Fail Analysis's user avatar
3 votes
1 answer
251 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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3 votes
0 answers
278 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 ...
Hasek's user avatar
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3 votes
0 answers
289 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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3 votes
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191 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 ...
decaybeta's user avatar
2 votes
2 answers
432 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 ...
Student's user avatar
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2 votes
1 answer
2k views

Libor transition: Building SOFR discount curve

As I understand that after 2023 the Libor will be discontinued and OI rates like SOFR will ...
Daniel's user avatar
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2 votes
1 answer
1k 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....
Penelope's user avatar
2 votes
1 answer
110 views

What are the quantitative models for modelling the SOFR rate, the IR products when Libor rates end [duplicate]

Many year ago, I worked on the pricing of IR products (Floating rate swap, CMS swap, Cap, Floor,...) Libor rates are now replaced by SOFR rate. I would like to know What are the new IR products (...
NN2's user avatar
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2 votes
2 answers
469 views

Quantlib SOFR swap repricing across 2 different dates

I am trying to price SOFR swaps in two different dates (the same swaps, just different curves and dates) This are my initial parameters: ...
Lucas Triana's user avatar
2 votes
1 answer
793 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 \...
Hasek's user avatar
  • 764
2 votes
1 answer
752 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 ...
Student's user avatar
  • 39
2 votes
1 answer
2k 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 ...
subnagus's user avatar
2 votes
1 answer
178 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-...
Amit's user avatar
  • 21
2 votes
1 answer
214 views

Using CME SOFR Futures in practice

I'm looking for numerical examples on how CME SOFR futures contracts are used in practice for hedging purposes. Book references containing this discussion are appreciated. Bloomberg's FLDS function ...
SuavestArt's user avatar
2 votes
1 answer
139 views

Does the CME Option on 1M SOFR keep trading in the compounding period

I am working with implied vol surfaces for money market options and trying to understand the dynamics of the CME's options on one-month SOFR futures. I want to establish whether trading ceases before ...
Andrew Kirk's user avatar
2 votes
0 answers
105 views

How do forward-looking forward rates in the Mercurio's and Lyashenko's normal or extended FMM model represent EURIBOR rates

(By XIBOR I intend any EURIBOR or LIBOR rate. By RFR I intend SOFR for the USD and ESTR (€STR) for EUR.) I am mainly focused on the EUR rates market (but also a bit on the USD market) and looking for ...
Olórin's user avatar
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2 votes
0 answers
169 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 ...
equanimity's user avatar
2 votes
0 answers
657 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 ...
equanimity's user avatar
2 votes
0 answers
147 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 ...
pyCthon's user avatar
  • 2,081
2 votes
1 answer
280 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 ...
CreditNecromancer's user avatar
1 vote
1 answer
614 views

Face Value of SOFR futures

What is the face value of CME 1M and 3M SOFR future contracts? The face value of CME 3M Eurodollar Futures is 1 million.
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1 vote
2 answers
1k 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 ...
Bhaskar Gudimetla's user avatar
1 vote
2 answers
6k 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 ...
amaidment's user avatar
  • 137
1 vote
2 answers
195 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 ...
Data_Artist's user avatar
1 vote
1 answer
362 views

Understanding SOFR Fixing Rate Retrieval for Future Dates in QuantLib

I am using QuantLib to calculate the SOFR index for a bond's (ISIN : US025816CL12) cash flows. My objective is to understand how QuantLib computes the SOFR fixing rate for future dates. Here is my ...
TourEiffel's user avatar
1 vote
1 answer
87 views

SOFR Transition for Future Flow Transactions [duplicate]

I’m looking for some papers/articles for the transition from LIBOR to SOFR for future flow transactions/securitizations (such as Diversified Payment Rights). Would be happy if you could share some as ...
StructuredQuant's user avatar
1 vote
1 answer
199 views

What could the cashflows of US0SFR1Z Curncy be?

So this "SOFR vs fixed" swap has a fixed leg paying 5.231% yearly and a floating leg paying yearly the yearly compounded SOFR rate, and has a 1W term. If it has started today, it won't have ...
EricFlorentNoube's user avatar
1 vote
1 answer
182 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....
Bogaso's user avatar
  • 752
1 vote
1 answer
402 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 ...
Mathematician Joe's user avatar
1 vote
0 answers
63 views

SOFR futures options margining

If we consider quarterly (or serial, or mid-curve) SOFR options, traded on CME. Are those options subject to margining? It is clear to me that their underlying (say, 3M SOFR futures) is margined as ...
Mushtandoid's user avatar