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10 votes
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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 ...
AKdemy's user avatar
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10 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)....
dm63's user avatar
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9 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, ...
Jan Stuller's user avatar
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8 votes
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What is the market standard for IR option pricing when moving to SOFR

The industry will continue to use SABR and LMM, although in slightly modified versions. You may want to check the following papers to see how the extended model dynamics look like: SABR smiles for RFR ...
Hasek's user avatar
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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 ...
dm63's user avatar
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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 ...
Chris Taylor's user avatar
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6 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, ...
AKdemy's user avatar
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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 ...
dm63's user avatar
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6 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, ...
Jan Stuller's user avatar
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6 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, ...
river_rat's user avatar
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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 (...
Attack68's user avatar
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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, ...
dm63's user avatar
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5 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....
ir7's user avatar
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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 ...
Attack68's user avatar
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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 ...
Attack68's user avatar
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5 votes
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Model-free convexity adjustment

The convexity adjustment that is referred to here is the difference between the rate implied on a period by the STIR futures market and the Interest rate swap market. This is observable (in a model ...
Attack68's user avatar
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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 ...
Dimitri Vulis's user avatar
4 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 ...
Dimitri Vulis's user avatar
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 &...
AKdemy's user avatar
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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 ...
Jan Stuller's user avatar
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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 ...
Daneel Olivaw's user avatar
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 "...
rvignolo's user avatar
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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 ...
Kermittfrog's user avatar
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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 ,...
dm63's user avatar
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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 ...
JoshK's user avatar
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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 ...
KevinT's user avatar
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3 votes

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

Yes you add it to the forward rate in the payoff, you do not add it to the OIS curve. The OIS curve is typically an ON rate compounded daily, the instruments you use to bootstrap this curve do not ...
BrownianBread's user avatar
3 votes
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What are the quantitative models for modelling the SOFR rate, the IR products when Libor rates end

The reference you want is https://www.newyorkfed.org/arrc The conversion to SOFR from LIBOR was well worked and well publicised, concerning the transition issues and what were the ultimate ...
Attack68's user avatar
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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 ...
AKdemy's user avatar
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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 ...
Magic is in the chain's user avatar

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