A Simple Multi-Curve Model for Pricing SOFR Futures and Other Derivatives
18 Pages Posted: 17 Aug 2018
Date Written: August 3, 2018
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: Suggested Citation