Dynamic term structure models for SOFR futures

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Standard

Dynamic term structure models for SOFR futures. / Skov, Jacob Bjerre; Skovmand, David.

I: Journal of Futures Markets, Bind 41, Nr. 10, 2021, s. 1520-1544.

Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt

Harvard

Skov, JB & Skovmand, D 2021, 'Dynamic term structure models for SOFR futures', Journal of Futures Markets, bind 41, nr. 10, s. 1520-1544. https://doi.org/10.1002/fut.22246

APA

Skov, J. B., & Skovmand, D. (2021). Dynamic term structure models for SOFR futures. Journal of Futures Markets, 41(10), 1520-1544. https://doi.org/10.1002/fut.22246

Vancouver

Skov JB, Skovmand D. Dynamic term structure models for SOFR futures. Journal of Futures Markets. 2021;41(10):1520-1544. https://doi.org/10.1002/fut.22246

Author

Skov, Jacob Bjerre ; Skovmand, David. / Dynamic term structure models for SOFR futures. I: Journal of Futures Markets. 2021 ; Bind 41, Nr. 10. s. 1520-1544.

Bibtex

@article{f222fb03a4c24376968f9948e74fa693,
title = "Dynamic term structure models for SOFR futures",
abstract = "The London InterBank Offered Rate is scheduled for discontinuation, and the replacement advocated by US regulators is the Secured Overnight Financing Rate (SOFR). The only SOFR-linked derivative with significant liquidity and trading history is the SOFR futures contract, traded at the Chicago Mercantile Exchange. We use the historical record of futures prices to construct dynamic arbitrage-free models for the SOFR term structure. We find that a Gaussian arbitrage-free Nelson–Siegel model describes term structure well without accounting for jumps and seasonal effects observed in SOFR. However, a shadow-rate extension is needed to describe volatility near the zero-boundary impacting the futures convexity adjustment and option pricing.",
keywords = "arbitrage-free Nelson–Siegel, futures, LIBOR, SOFR, term structure models",
author = "Skov, {Jacob Bjerre} and David Skovmand",
note = "Publisher Copyright: {\textcopyright} 2021 Wiley Periodicals LLC",
year = "2021",
doi = "10.1002/fut.22246",
language = "English",
volume = "41",
pages = "1520--1544",
journal = "Journal of Futures Markets",
issn = "0270-7314",
publisher = "Wiley",
number = "10",

}

RIS

TY - JOUR

T1 - Dynamic term structure models for SOFR futures

AU - Skov, Jacob Bjerre

AU - Skovmand, David

N1 - Publisher Copyright: © 2021 Wiley Periodicals LLC

PY - 2021

Y1 - 2021

N2 - The London InterBank Offered Rate is scheduled for discontinuation, and the replacement advocated by US regulators is the Secured Overnight Financing Rate (SOFR). The only SOFR-linked derivative with significant liquidity and trading history is the SOFR futures contract, traded at the Chicago Mercantile Exchange. We use the historical record of futures prices to construct dynamic arbitrage-free models for the SOFR term structure. We find that a Gaussian arbitrage-free Nelson–Siegel model describes term structure well without accounting for jumps and seasonal effects observed in SOFR. However, a shadow-rate extension is needed to describe volatility near the zero-boundary impacting the futures convexity adjustment and option pricing.

AB - The London InterBank Offered Rate is scheduled for discontinuation, and the replacement advocated by US regulators is the Secured Overnight Financing Rate (SOFR). The only SOFR-linked derivative with significant liquidity and trading history is the SOFR futures contract, traded at the Chicago Mercantile Exchange. We use the historical record of futures prices to construct dynamic arbitrage-free models for the SOFR term structure. We find that a Gaussian arbitrage-free Nelson–Siegel model describes term structure well without accounting for jumps and seasonal effects observed in SOFR. However, a shadow-rate extension is needed to describe volatility near the zero-boundary impacting the futures convexity adjustment and option pricing.

KW - arbitrage-free Nelson–Siegel

KW - futures

KW - LIBOR

KW - SOFR

KW - term structure models

U2 - 10.1002/fut.22246

DO - 10.1002/fut.22246

M3 - Journal article

AN - SCOPUS:85110152761

VL - 41

SP - 1520

EP - 1544

JO - Journal of Futures Markets

JF - Journal of Futures Markets

SN - 0270-7314

IS - 10

ER -

ID: 306674555