A Simple Multi-Curve Model for Pricing SOFR Futures and Other Derivatives

18 Pages Posted: 17 Aug 2018

Date Written: August 3, 2018

Abstract

In this note we propose a simple two-factor multi-curve model where Fed-fund, SOFR and LIBOR rates are modeled jointly. The model is used to price the newly quoted SOFR futures as well as Eurodollar futures. We then derive pricing formulas for SOFR-based swaps, and show how the valuations of LIBOR-based swaps as well as LIBOR-SOFR basis swaps are impacted by the introduction of a new LIBOR fallback.

Keywords: LIBOR, SOFR, Multi-Curve Model, Futures, Swap, Basis Swap

JEL Classification: G13

Suggested Citation

Mercurio, Fabio, A Simple Multi-Curve Model for Pricing SOFR Futures and Other Derivatives (August 3, 2018). Available at SSRN: https://ssrn.com/abstract=3225872 or http://dx.doi.org/10.2139/ssrn.3225872

Fabio Mercurio (Contact Author)

Bloomberg L.P. ( email )

731 Lexington Avenue
New York, NY 10022
United States

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