SOFR Futures and Options

Table of contents

1. Cover
2. Title Page
3. Copyright
4. Foreword
   1. A LITTLE BIT OF HISTORY
   2. A REVOLUTION IN FINANCE
   3. ALL THE BEST
5. Introduction
   1. EURODOLLARS
   2. EURODOLLAR FUTURES
   3. LIBOR
   4. THE GREAT FINANCIAL CRISIS
   5. THE LIBOR RIGGING SCANDAL
   6. SOFR AND REPO MARKETS
   7. SOFR FUTURES AND OPTIONS: TOPICS AND STRUCTURE OF THIS BOOK
   8. IMPLICATIONS OF SOFR FOR MARKET ANALYSIS
   9. REMAINING HURDLES IN THE TRANSITION FROM LIBOR TO SOFR
   10. THE TRANSITION CONTINUES
   11. NOTES
6. SECTION ONE: Concepts
   1. CHAPTER 1: SOFR
      1. THE REPO MARKET
      2. SOFR: DEFINITIONS AND FEATURES
      3. CALCULATING A REFERENCE REPO RATE
      4. ORIGIN OF REPO RATES USED FOR SOFR CALCULATION
      5. SOFR VERSUS FED FUNDS
      6. SOFR SPIKES AND THE SRF
      7. BENEFITS AND (POTENTIAL) PROBLEMS OF SOFR
      8. NOTES
   2. CHAPTER 2: SOFR Futures
      1. 3M SOFR FUTURES: CONVENTIONS
      2. 3M SOFR FUTURES AS MARKET PRICES FOR CONSECUTIVE 3M FORWARD SOFR
      3. 3M SOFR FUTURES: STRIPS
      4. 3M SOFR FUTURES: ROLLS
      5. 1M SOFR FUTURES: CONVENTIONS
      6. 1M VERSUS 3M SOFR FUTURES
      7. 1M AND 3M SOFR FUTURES: LIQUIDITY
      8. 1M AND 3M SOFR FUTURES: ASSESSING THE EFFECT OF FOMC MEETINGS
      9. PRICING AND HEDGING WITH SOFR FUTURES: GENERAL CONSIDERATIONS
      10. EFFECT OF PROCESS SELECTION ON THE PRICING OF SOFR FUTURES
      11. EXAMPLE FOR HEDGING A SOFR TERM RATE WITH SOFR FUTURES VIA A JUMP PROCESS
      12. NOTES
   3. CHAPTER 3: SOFR Lending Markets and the Term Rate
      1. CONVENTIONS OF SOFR-BASED LENDING MARKETS
      2. STATUS OF SOFR-BASED LENDING MARKETS
      3. SIMPLE AVERAGING VERSUS DAILY COMPOUNDING
      4. THE SOFR INDEX
      5. TERM RATE
      6. THE MODEL TRANSLATING SOFR FUTURE PRICES IN SOFR TERM RATES
      7. CRITICISM OF THE CME TERM RATE
      8. TWO SCENARIOS FOR THE FURTHER EVOLUTION OF THE TENSION AND HENCE THE TERM RATE
      9. NOTES
   4. CHAPTER 4: SOFR Spread Futures and the Basis
      1. SOFR FUTURES IN THE STIR UNIVERSE
      2. DRIVING FORCES OF SPREADS IN THE STIR UNIVERSE
      3. CME'S SPREAD CONTRACTS
      4. DRIVING FACTORS OF THE SECURED–UNSECURED BASIS
      5. A MODEL FOR THE SECURED–UNSECURED BASIS, LINKING IT WITH OTHER BASES (CCBS)
      6. FIRST APPLICATION OF THIS MODEL: PRICING SPREAD FUTURES
      7. SECOND APPLICATION OF THIS MODEL: REPLACING THE CCBS WITH SPREAD FUTURES IN SOME RV TRADES
      8. THIRD APPLICATION OF THIS MODEL: NEW RV RELATIONSHIP
      9. THE CCBS AND THE MODEL AFTER THE END OF LIBOR
      10. REMAINING PRODUCTS WITH EXPOSURE TO THE BASIS AFTER THE END OF LIBOR
      11. SWAPS WITH SOFR AS FLOATING LEG AND ASSET SWAPS AFTER THE END OF LIBOR
      12. HEDGING SOFR-BASED SWAPS AND GOVERNMENT BONDS WITH SOFR FUTURES
      13. NOTES
   5. CHAPTER 5: SOFR Future Options
      1. OPTIONS ON 3M SOFR FUTURES: PRODUCT SUITE AND SPECIFICATIONS
      2. OVERVIEW OF GENERAL VOLATILITY ANALYSIS
      3. DISTRIBUTION OF REALIZED VOLATILITY OVER THE SECURED YIELD CURVE
      4. CURRENT IMPLIED VERSUS HISTORICAL REALIZED VOLATILITY
      5. OPTIONS ON SOFR FUTURES VERSUS OPTIONS ON ED FUTURES
      6. OPTIONS ON 1M SOFR FUTURES: PRODUCT SUITE AND SPECIFICATIONS
      7. OVERVIEW OF AVAILABLE PRICING MODELS FOR ASIAN OPTIONS
      8. A POSSIBLE ROAD MAP TOWARD PRICING OPTIONS ON SOFR FUTURES DURING THE REFERENCE PERIOD
      9. IMPACT OF PROCESS SELECTION ON THE PRICING OF OPTIONS ON SOFR FUTURES
      10. NOTES
   6. CHAPTER 6: Pricing Biases and SOFR Curve Building
      1. BIASES IN EURODOLLAR FUTURES PRICES
      2. NONLINEARITIES RESULTING FROM CONTRACT DEFINITIONS
      3. BIASES IN SOFR FUTURES
      4. BUILDING A SOFR SWAP CURVE FROM SOFR FUTURES
      5. NOTE
7. SECTION TWO: Use Cases
   1. CHAPTER 7: Simple Examples of Hedging with SOFR Futures
      1. EXAMPLE 1: CORPORATE TREASURER CONVERTING FLOATING RATE EXPOSURE TO FIXED
      2. EXAMPLE 2: LOCKING IN AN INTEREST RATE WITH MISMATCHED DATES
      3. EXAMPLE 3: USING ONE-MONTH SOFR FUTURES AS A HEDGING ALTERNATIVE
      4. LESSONS TO BE LEARNED FROM THESE THREE SIMPLE EXAMPLES
      5. NOTES
   2. CHAPTER 8: Hedging the CME Term SOFR Rate
      1. THE TERM SOFR METHODOLOGY
      2. THE CME TERM SOFR OBJECTIVE FUNCTION
      3. OBTAINING FUTURES PRICES TO USE AS INPUTS TO THE TERM SOFR MODEL
      4. HEDGING TERM SOFR EXPOSURE
      5. A PRECISE APPROACH TO HEDGING CME TERM SOFR EXPOSURE
      6. PRACTICAL CONSIDERATIONS
      7. NOTES
   3. CHAPTER 9: Hedging Swaps and Bonds with SOFR Futures
      1. TREASURIES VERSUS SOFR FUTURES STRIPS
      2. HEDGING SOFR SWAPS WITH SOFR FUTURES
      3. HEDGING TREASURIES WITH SOFR FUTURES
      4. NOTES
   4. CHAPTER 10: Hedging Caps and Floors with SOFR Futures Options
      1. HEDGING WITH OPTIONS ON 3M SOFR FUTURES BEFORE THEIR REFERENCE QUARTER STARTS
      2. MANAGING THE HEDGE DURING THE REFERENCE QUARTER
      3. BASIC REPLICATION STRATEGIES OF CAPS AND FLOORS WITH 1M FUTURE OPTIONS
      4. DEALING WITH DAILY FLOORS
      5. NOTES
8. Bibliography
9. Index
10. End User License Agreement