Saved in:
| Main Authors: | , |
|---|---|
| Format: | Preprint |
| Published: |
2025
|
| Subjects: | |
| Online Access: | https://arxiv.org/abs/2508.02691 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1866908837008637952 |
|---|---|
| author | Pennanen, Teemu Taoum, Waleed |
| author_facet | Pennanen, Teemu Taoum, Waleed |
| contents | SOFR derivatives market remains illiquid and incomplete so it is not amenable to classical risk-neutral term structure models which are based on the assumption of perfect liquidity and completeness. This paper develops a statistical SOFR term structure model that is well-suited for risk management and derivatives pricing within the incomplete markets paradigm. The model incorporates relevant macroeconomic factors that drive central bank policy rates which, in turn, cause jumps often observed in the SOFR rates. The model is easy to calibrate to historical data, current market quotes, and the user's views concerning the future development of the relevant macroeconomic factors. The model is well suited for large-scale simulations often required in risk management, portfolio optimization and indifference pricing of interest rate derivatives. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2508_02691 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Statistical modeling of SOFR term structure Pennanen, Teemu Taoum, Waleed Statistical Finance SOFR derivatives market remains illiquid and incomplete so it is not amenable to classical risk-neutral term structure models which are based on the assumption of perfect liquidity and completeness. This paper develops a statistical SOFR term structure model that is well-suited for risk management and derivatives pricing within the incomplete markets paradigm. The model incorporates relevant macroeconomic factors that drive central bank policy rates which, in turn, cause jumps often observed in the SOFR rates. The model is easy to calibrate to historical data, current market quotes, and the user's views concerning the future development of the relevant macroeconomic factors. The model is well suited for large-scale simulations often required in risk management, portfolio optimization and indifference pricing of interest rate derivatives. |
| title | Statistical modeling of SOFR term structure |
| topic | Statistical Finance |
| url | https://arxiv.org/abs/2508.02691 |