Impact Analysis: The 2020 Clearing House Switch from OIS to SOFR Discounting

Learn how Numerix and Python can be used to perform impact analysis on the switch from OIS to SOFR discounting, including the expected cash compensation and risk exchanges from major clearing houses in October 2020.

In October 2020, both LCH and CME will be switching their Price Alignment Interest (PAI) and discounting rates for USD OTC cleared swaps from OIS (daily effective Fed Funds rate, or EFFR) to SOFR. This shift should help support widespread adoption of SOFR as an interest rate benchmark and it should have a strong positive impact on the liquidity of SOFR-based products.

However, do you know the direct impact of the OIS/SOFR shift on your own firm? Are you prepared? How will the discounting change affect the P&L and risk of your USD swap portfolio? What kind of cash compensation and discounting risk exchange (i.e. EFFR/SOFR basis swap exchange) should you expect from the clearing houses?

Join Liang Wu as he shows you how you can use Numerix and Python to deal with this historic shift in benchmarks by LCH and CME. He covers:

  • SOFR curve construction – brief review
  • The impact of switching from OIS to SOFR discounting
    • P&L impact analysis
    • Clearing house compensation – cash and risk exchange
    • Implications for curve construction
  • Key Takeaways

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