The Institute for Statistics and Mathematics is pleased to invite you to the next research seminar, taking place on campus:

Erik Schlögl (School of Mathematical and Physical Sciences, University of Technology, Sydney (UTS), Australia)
Term Structure Modelling from the SOFR Perspective
Friday, October 21, 2022, 9:00 am, Building TC, Room TC.3.01

Abstract:
The Secured Overnight Funding Rate (SOFR) has become the main benchmark for US dollar interest rates; thus, models need to be updated to reflect the key features exhibited by the dynamics of SOFR and the forward rates implied by SOFR futures. As an index based on transactions in the Treasury overnight repurchase market, the dynamics of SOFR are closely linked to the dynamics of the Effective Federal Funds Rate (EFFR), which is the interest rate most directly impacted by US monetary policy target rate decisions. Therefore, these rates feature jumps at known times (Federal Open Market Committee meeting dates), and market expectations of these jumps drive the prices for futures contracts written on these rates. On the other hand, forward rates implied by Fed Funds and SOFR futures continue to evolve diffusively. The models presented in this talk reflect these features of SOFR dynamics. In particular, they reconcile diffusive forward rate dynamics with piecewise constant paths of the target short rate. The first, Gaussian version of the model allows us to extract the factor dynamics from market data, informing the stochastic modelling choices in the second version of the model, which is calibrated to market prices for options on SOFR futures.

Joint work with K. Gellert.

We aim to stream all on-campus talks via Zoom. A direct link to the stream will be posted on our website.

For further information and the seminar schedule, please see:
www.wu.ac.at/en/statmath/research/resseminar