While it may still remain unclear how exactly the COVID-19 pandemic will affect LIBOR transition efforts, such as whether it will result in delays of interim transition deadlines—or even the ultimate LIBOR cessation deadline itself—it has certainly disrupted the financial markets and has had an impact on LIBOR and SOFR rate volatility, and particularly on interest rate derivatives.
In a recent panel discussion hosted by Risk.net titled LIBOR Countdown: Spotlight on Derivatives, Numerix’s Dr. Ping Sun provided his perspective on market implications for SOFR based futures and swaps. This Q&A shares the details of his responses, which ranged across several topics, including:
- LIBOR and SOFR rate spreads
- SOFR volatility
- SOFR curve construction
- SOFR Market liquidity
- Discounting change and compensation
- Impact of SOFR Switch on Swaptions
“Market participants need to understand how rate behavior impacts their trades and their positions in various products. SOFR has so far proved to be extremely sensitive to the liquidity in the market, although in a different form that of LIBOR.”
AUTHOR BIOGRAPHY
Dr. Sun, PhD is Senior Vice President of Financial Engineering at Numerix. He is also the product manager of the Numerix CrossAsset analytics platform. Dr. Sun's work has appeared in a number of publications and academic journals, and he has been showcased as a lecturer at a range of academic events and industry conferences. Dr. Sun was a postdoctoral fellow at Rutgers University and he earned a doctorate degree in Physics from City College of New York. He also received an undergraduate degree in Physics from Fudan University in Shanghai, China.
