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.

Auteur

DOUG HUGGINS, PHD, has over thirty-two years of experience working in the fixed income markets. He has worked as a European fixed income relative value researcher at Deutsche Bank, as well as a Global Head of Fixed Income Relative Value Research and Global Head of Hedge Fund Sales at ABN AMRO, and founded a proprietary trading desk at ABN. CHRISTIAN SCHALLER, PHD, was Global Head of Leveraged Investment Strategy at ABN AMRO and is now an independent consultant and trainer for financial institutions. He co-founded, with Doug Huggins, QMA Analytics, a London-based firm providing analytic software for financial market participants.

Texte du rabat

A mainstay of global finance for over thirty years, the Eurodollar futures and options complex is widely regarded as one of the most successful products in the history of exchange-traded derivatives. But with the transition from LIBOR to SOFR (the secured overnight financing rate), Eurodollar futures and options are being replaced by SOFR futures and options.

In SOFR Futures and Options, Doug Huggins and Christian Schaller provide a comprehensive and authoritative discussion of the new SOFR complex, starting with an introduction to the secured overnight financing rate, and including a set of worked examples, illustrating the steps required to successfully make use of the SOFR futures and options contracts listed at the CME Group.

The authors also discuss a number of more advanced issues surrounding the complex, such as pricing differences between one-month and three-month futures contracts, building a SOFR yield curve from futures prices, hedging the CME Term Rate, and the challenges of hedging SOFR loan products using options on one-month and three-month contracts.

In addition to worked examples of specific trades involving SOFR futures and options, the book includes access to electronic resources, including spreadsheets, which can be accessed online. From the repo market underlying SOFR, to the effects of margin and convexity, SOFR Futures and Options covers the essential topics in this complex and nuanced subject.

An essential resource for students attending finance classes at universities or preparing for the Chartered Financial Analyst exam, SOFR Futures and Options will provide a valuable resource for anyone working in financial institutions with responsibility for short-term interest rate futures contracts.

Contenu

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