The Final Stretch: Outstanding Issues in Non-linear RFR Derivatives
The transition away from Libor has been relatively smooth. Six months on from Libor cessation, cash and derivatives markets have adapted quickly to the new multi-rate world. In the US, where selected USD Libor tenors will remain until mid-2023, SOFR is firmly established as the preferred alternative for derivatives.
However, one area of the market remains resistant to change. Non-linear derivatives – such as options, caps and floors – are poorly suited to backward-looking benchmarks such as SOFR, and market participants face difficult questions around product structure, volatility, valuation, pricing, liquidity and hedging.
This leaders’ panel explores:
- How the market is adapting to SOFR swaptions
- The products best suited to term SOFR
- Lessons from the latest deals and developments
- The current state of the market: volumes and liquidity in RFR options, caps and floors, and other complex products
- Valuation and pricing hurdles associated with in-arrears rates
- Challenges and developments in modelling volatility in SOFR and overnight rates
Speakers:
Ping Sun, SVP of Financial Engineering, Numerix
Ralph Axel , Director and U.S. Rates Strategist, BofA Global Research
Moderated by: Helen Bartholomew, Editor-at-large, Emea, Risk.net
