LIBOR Fallback: Compounded Risk-Free Rates & Historical Data Analysis

In April 2020, a webinar titled "The LIBOR Transition: Impact of SOFR Switch on Swaptions" discussed LIBOR transition headwinds linked to COVID-19.

This 3-part ebook details the analysis of SOFR and LIBOR fixings and volatility, the impact of the Fed Funds/SOFR switch on value transfers for swaptions and the impact on swaptions of LIBOR fallback discussed in that webinar.

Chapter 2 continues the analysis of historical data for SOFR and LIBOR leading up to March/April 2020 and specifically looks at the LIBOR fallback and how market participants can understand the historical data from the fallback definition. It also reviews SOFR compounding and analyzes historical fixings and historical volatility for SOFR versus LIBOR, as well as SOFR-LIBOR correlation.

Click the orange "download" button above for Chapter 2.

Chapter 1 focuses on the impact of COVID-19 on the financial markets and, consequently, on LIBOR and SOFR rates leading up to March/April 2020 and how transition milestones continued despite the pandemic, and do so by highlighting SOFR derivatives trade volume.

Chapter 3 focuses on swaptions - the U.S. dollar market there are two transitions that will take place: the first is in October 2020, when the discounting curve of cleared, USD denominated products and Price Alignment Interest (PAI) will switch from OIS to SOFR; the second regards the LIBOR fallback, when LIBOR is replaced by SOFR plus a spread.