7 votes
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Libor transition: Building SOFR discount curve

OIS Discounting: First note that we already discount using USD OIS rates, but these would be OIS rates constructed from USD OIS Swaps linked to the Effective Federal Funds Rate (EFFR). In other words, ...
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  • 5,106
6 votes
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LIBOR replacement in client products and prospective pricing

This question is the subject of much current debate amongst regulators and banks. You are absolutely correct , many banks are alarmed that the demise of Libor will make their asset-liability ...
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5 votes
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Uncollateralised trades in Libor transition

Two replacements for the 3M Libor curve are possible: Construct a new 3M Swap discounting curve by adding spreads on top of the SOFR curve. These spreads can be calibrated on uncollateralized 3M SOFR ...
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  • 828
5 votes
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Term SOFR rate formula

The issue is data ownership and transparency in my view. Whilst OIS-swaps do give a more accurate view of the daily RFR rates that will compound to yield the Term SOFR reference rates, the OIS swaps ...
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  • 8,047
5 votes
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USD swaps trading post LIBOR: the current state of the world (January 2022)

The Commodity Futures Trading Commission’s Market Risk Advisory Committee (CFT MRAC) went ahead with a 4-phase program in 2021 called "SOFR First": the four phases relate to linear IRS, ...
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  • 5,106
4 votes

LIBOR replacement in client products and prospective pricing

Here's my take on this. Firstly, in my experience, banks do not raise financing as a function of Libor, but rather as a function of the local Central Bank policy rate. As an example, the Czech Central ...
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  • 5,106
4 votes

Uncollateralised trades in Libor transition

To add to above answer, this GARP article is summarizing recent work on new benchmark indices that attempt to address what Libor was meant to ('fairly') cover, but RFR’s don't, namely (term, ...
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4 votes
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Is there a difference between JPY TONA and JPY TONAR?

This document from Japanese bank Mitsubishi UFJ states they are one and the same rate, see page 3 $-$ my emphasis: TONAR (Tokyo Overnight Average Rate), the RFR for JPY also called TONA, is a pre-...
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3 votes

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

I believe that this recent paper by Andrei Lyashenko and Fabio Mercurio is going to help you! For me it was completely amazing. It seems that we can just extend the Libor Market Model in a "...
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  • 711
3 votes

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

Unfortunately, I cannot provide a definite answer. In the major currencies, the risk free rate working groups (US:ARRC, UK:RFRWG and the EU:RFRWG) try to promote new standards for the cash and ...
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  • 5,763
3 votes

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

I think a little clarity is needed here. A swap means exchanging A for B. Swaps trade on anything and everything. You can trade IOS/BBA Muni swaps, you can trade a swap linked to the gold ...
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  • 2,413
3 votes
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The exact mechanics of USD OIS Swaps: SOFR, EFFR & Libor cessation

I try to keep your enumerated structure yet address the points you edited into the question: (i) I only know of USD OIS referencing the EFFR and the SOFR (ii) My perception is that EFFR als float leg ...
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  • 553
3 votes
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Replacing USD OIS discounting based on FED Funds Rate with SOFR discounting

The Fed convened the ARRC (Alternative Reference Rate Committee) in I think 2015 to begin the process of transitioning the financial markets away from Libor. Why? Because Libor had been manipulated ,...
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3 votes
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Which date SONIA rate to apply for today's date in an OIS swap

Firstly, note that this is a detail which changed in 2018. The BenchMark Regulations (applied from the EU reg) require that benchmarks are based on actual transactions, so Sonia changed from being a ...
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  • 3,589
2 votes
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Compounding arrear SOFR Forward rate/curve

Good question. There are two things to consider: SOFR Swap curve USD LIBOR Swaps that will fall back onto the 90-day backward-compounded spot SOFR + a fixed spread. To my knowledge, SOFR swaps (i.e....
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  • 5,106
2 votes

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

"US banks fund themselves via EFFR (Effective Federal Funds Rate), as well as the Secured Overnight Financing Rate (SOFR)" Bank funding is only partly via Fed Funds - there were many ...
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  • 2,076
2 votes

OIS rate to build Term structure

By definition, the overnight rate is the rate at which banks lend to each other overnight. Overnight index swaps (OIS) allow banks to 'lock in' the cost of funding overnight for a specific term. They ...
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  • 2,069
2 votes
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Understanding Spread, SOFR - US Treasury

This has been asked before. I do not think there is any implication from a negative spread (certainly not from the perspective of it being an indicator of perceived credit risk or not). Edit: There is ...
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  • 4,493
2 votes
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LIBOR Cessation: Construction of Term-RFRs as LIBOR Fallbacks; Forward vs. Backward Looking

Another apology, I won't be able to give a definite answer either but in case of IR swaps I believe the following applies: legacy (i.e. IBOR linked) contracts: the fallback protocol has been ...
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2 votes
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Current liquidity of USD OIS-SOFR Swaps

I like this particular blog on rates: https://www.clarusft.com/blog/ Specifically, here is post with some info on SOFR swaps liquidity. There is a section in this post on SOFR volumes by tenor: https:/...
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  • 910
1 vote

Compare equity option volatility under SOFR vs LIBOR

I do not think there is any problem. Firstly, you also did not use OIS but LIBOR now, although the "appropriate" risk free rate would be OIS. You also did not compare the two. To address the ...
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  • 4,493
1 vote

OIS rate to build Term structure

This is my most up-to-date understanding of the matter: (i) OIS Swaps are here to stay. Already today, in the US, there two types of OIS Swaps, ones indexed to the Effective Federal Funds Rate (EFFR) ...
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  • 5,106
1 vote

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

iii) The OpenGamma piece on IRS market conventions might help. https://quant.opengamma.io/Interest-Rate-Instruments-and-Market-Conventions.pdf [EDIT or USSO2 BGN Curncy DES, for e.g., which provides ...
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