Analyzing the Market Impact of SOFR Discounting

Understanding the Significance of SOFR Discounting for Derivatives Trading and Risk

The switch to SOFR discounting marks a turning point in the LIBOR transition—and it brings many changes. Being aware of the full impact of these changes will be key to understanding the implications for a derivatives trading business.

This paper discusses the differences between OIS curves and SOFR curves, the impact of SOFR discounting on future cashflows, the dynamics of SOFR discounting risk, and the replacement of LIBOR with SOFR as the underlying of the derivatives market.