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Is SOFR to replace LIBOR or Fed Fund Rate or both

The market is using SOFR discounting for all sorts of quotations already (not FF). For example, swaption vol is quoted with SOFR discounting, CME and LCH moved to SOFR PAI and discounting on Oct. 16 ...
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8 votes
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SOFR Discount Curve Construction in Nov 2021

Fixed vs SOFR swaps for longer maturities are very liquid, since the interbank market trades these directly now, and these are the best instruments to construct the long end of the curve (2yr to 50yr)....
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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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6 votes

US overnight swaps (OIS)

Well, OIS is actually a style of swap, based on overnight rates. It could have a Fed Funds or a SOFR underlying rate, or anything else. Up until recently , it was assumed in common parlance that OIS ...
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6 votes
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Face Value of SOFR futures

The 3M futures are worth \$2500 per index point and the 1M futures are worth \$4167 per index point. The index is $$P = 100 - R$$ where R is the compounded SOFR (annualized) over the reference ...
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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

SOFR term structure

At this point liquidity in SOFR is provided by a set of futures contracts in the very short end of the curve , and then through Libor -SOFR basis swaps which are reasonably liquid up to around 5years, ...
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5 votes

Difference between OIS Rate and Risk-Free Rate

RFR (risk free rate) is the current acronym ISDA, central banks and regulators are pursuing to signify and politicise the transition from IBOR, which has been dogged by rigging scandals. OIS (...
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5 votes
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Transition to SOFR Swaps and single curve pricing

I think the question was about dual curve stripping. As much as I know, the market is using SOFR discounting for all sorts of quotations now. For example, swaption vol is quoted with SOFR discounting, ...
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5 votes

SOFR Transition

SOFR is just an index, like FedFunds or LIBOR, there is no fundamentally different schema for creating a curve. It involves exactly the same considerations you will make as if you are constructing a ...
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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 votes

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

The front end of the SOFR curve has a lot of structure in it. I cant talk to "market convention" as I doubt something like that exists yet but I use Fixed for floating SOFR swaps (1w, 2w, ...
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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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4 votes

Is SOFR to replace LIBOR or Fed Fund Rate or both

SOFR was never meant to take USD LIBOR's role, as USD LIBOR reflects unsecured funding (and is credit sensitive). An index like BSBY, on the other hand, can. BoA just started issuing FRNs linked to it....
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4 votes
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DV01 on LIBOR vs. SOFR basis Swaps

I will try to make a more general suggestion that doesn't depend on SOFR, EONIA, LIBOR, cross-currency basis, etc, but applies all all linear interest rates products. Sorry if I may be digressing. You ...
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4 votes

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

1 ) Spread is for fwd only 4 ) Discounting is SOFR in any case (if using dual curve). See here for some details. That said, FF OIS still exists, but even this curve is discounted by SOFR and applies &...
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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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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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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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3 votes
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Theoretical fair value of SOFR 1M and 3M Future contracts?

(Edit 23.11.2020) [Note that my previous derivations were too hasty and had some issues, I will try to amend when time allows. In any case, note that those results were merely model-free: SOFR Futures ...
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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

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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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
2 votes

SOFR Discounting & Price Alignment Transition

There is (and was at the time of asking) a fairly liquid Outright SOFR OIS market. You also have futures. So there really is not much of a difference. Risk.net analyzed this. I think frequently OIS ...
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2 votes

Libor to SOFR transition Yield Curve Construction

Like any curve construction, you would use the prices of traded assets to construct the curves. For example, in the standard LIBOR, people use FRA, futures, and swaps referencing LIBOR to construct ...
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2 votes

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

SOFR is based on the Repo market, which uses SIFMA USD calendar, in which Good Friday is (usually) a holiday. There is (usually, most years) no SOFR published on Good Friday. If SIFMA decides that the ...
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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 votes

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

Not sure if this will entirely answer your question, but the key concept here is that the Futures contracts are not priced via some theoretical model, but their price is entirely driven by supply and ...
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  • 5,096
2 votes

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

A first step would obvisouly be to check if the curve you built replicates the input instruments. A second step might be to check the forwards to see if there is irregular behaviour around the curve ...
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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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