SOFR Futures and Options

A mainstay of global finance for over thirty years, the Eurodollar futures and options complex is widely regarded as one of the most successful products in the history of exchange-traded derivatives. But with the transition from LIBOR to SOFR (the secured overnight financing rate), Eurodollar futures and options are being replaced by SOFR futures and options.
 
In SOFR Futures and Options, Doug Huggins and Christian Schaller provide a comprehensive and authoritative discussion of the new SOFR complex, starting with an introduction to the secured overnight financing rate, and including a set of worked examples, illustrating the steps required to successfully make use of the SOFR futures and options contracts listed at the CME Group.
 
The authors also discuss a number of more advanced issues surrounding the complex, such as pricing differences between one-month and three-month futures contracts, building a SOFR yield curve from futures prices, hedging the CME Term Rate, and the challenges of hedging SOFR loan products using options on one-month and three-month contracts.
 
In addition to worked examples of specific trades involving SOFR futures and options, the book includes access to electronic resources, including spreadsheets, which can be accessed online. From the repo market underlying SOFR, to the effects of margin and convexity, SOFR Futures and Options covers the essential topics in this complex and nuanced subject.
 
An essential resource for students attending finance classes at universities or preparing for the Chartered Financial Analyst exam, SOFR Futures and Options will provide a valuable resource for anyone working in financial institutions with responsibility for short-term interest rate futures contracts.

Foreword by Galen Burghardt vii
Introduction 1
Section One Concepts 15
Chapter 1 SOFR 17
Chapter 2 SOFR Futures 35
Chapter 3 SOFR Lending Markets and the Term Rate 73
Chapter 4 SOFR Spread Futures and the Basis 93
Chapter 5 SOFR Future Options 115
Chapter 6 Pricing Biases and SOFR Curve Building 143
Section Two Use Cases 163
Chapter 7 Simple Examples of Hedging with SOFR Futures 165
Chapter 8 Hedging the CME Term SOFR Rate 177
Chapter 9 Hedging Swaps and Bonds with SOFR Futures 191
Chapter 10 Hedging Caps and Floors with SOFR Futures Options 211
Bibliography 227
Index 229