SOFR Futures and Options

SOFR Futures and Options is the practical guide through the maze of the transition from LIBOR. In the first section, it provides an in-depth explanation of the concepts involved: The repo market and the construction of SOFR SOFR-based lending markets and the term rate The secured-unsecured basis SOFR futures and options and their spread contracts Margin and convexity Applying these insights, the second section offers detailed worked-through examples of hedging loans, swaps, bonds, and floors with SOFR futures and options, supported by interactive spreadsheets accessible on the web. The gold standard resource for professionals working at financial institutions, SOFR Futures and Options also belongs in the libraries of students of finance and business, as well as those preparing for the Chartered Financial Analyst exam.

Foreword by Galen Burghardt vii Introduction 1 Section One Concepts 15 Chapter 1 SOFR 17 Chapter 2 SOFR Futures 35 Chapter 3 SOFR Lending Markets and the Term Rate 73 Chapter 4 SOFR Spread Futures and the Basis 93 Chapter 5 SOFR Future Options 115 Chapter 6 Pricing Biases and SOFR Curve Building 143 Section Two Use Cases 163 Chapter 7 Simple Examples of Hedging with SOFR Futures 165 Chapter 8 Hedging the CME Term SOFR Rate 177 Chapter 9 Hedging Swaps and Bonds with SOFR Futures 191 Chapter 10 Hedging Caps and Floors with SOFR Futures Options 211 Bibliography 227 Index 229