analyst report

LIBOR Risk Q3 2020

Risk Magazine Quarterly Report

New Libor Risk Report

Time is ticking down to LIBOR’s planned decommission date of December 31, 2021. Firms need to move quickly to execute their transition strategies and having unique insight into certain key issues can aid decision-making.

In this Q&A paper produced by in collaboration with Numerix's Ping Sun, PhD, Senior Vice President, Financial Engineering multiple aspects and considerations regarding the transition are examined, including the following, among other topics:

  • LIBOR transition timelines and the potential impact of any changes to interim milestones
  • Top concerns of market participants, such as market data on risk-free rates (RFR), liquidity development, and stripping RFR curves
  • Volatility of the SOFR versus Libor spread and the general stability of SOFR
  • Protocols used for fallback methodology
  • The market implications for SOFR-based futures and swaps.


As of today, the liquidity of SOFR swaps is still a concern, especially when it comes to curve stripping. The overall SOFR swap trading volume is less than 1% of that of the USD Libor swaps. However, when the discounting switch happens this October, it is expected the demand in the SOFR versus Fed funds basis swaps would get boosted to hedge the SOFR discounting risk.

Ping Sun, Numerix

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