Two years in, the transition toward SOFR has seen several milestones crossed, with 2019 in particular seeing a strong acceleration in SOFR usage. With all the SOFR trading activity that has taken place thus far, the picture is solidifying over how the switch from OIS to SOFR discounting will impact the market.

Being aware of the full impact of these changes will be key to understanding the implications for your own derivatives trading business. Are you prepared? Do you know what to expect?

"From a risk perspective, market risk will now be dependent on SOFR instead of OIS, and this could require completely different hedging vehicles."

In this paper, Ping Sun, Senior Vice President, Financial Engineering, explains the following:

  • The differences between OIS curves and SOFR curves
  • The impact of SOFR discounting on future cashflow
  • The dynamics of SOFR discounting risk
  • What gets affected by the replacement of LIBOR with SOFR as the underlying of the derivatives market

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.

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Preparing for the Switch to SOFR Discounting