LIBOR Swaptions: Impact of Discounting Switch & Fallback

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 3 concludes the analysis of historical data for SOFR and LIBOR leading up to March/April 2020 and focuses on swaptions. In 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. 

Click the orange "download" button above for Chapter 3.


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 2 looks at the LIBOR fallback and how market participants can understand the historical data from the fallback definition;  and also reviews SOFR compounding and analyzes historical fixings and historical volatility for SOFR versus LIBOR, as well as SOFR-LIBOR correlation.