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This post replicates the construction process of the SOFR index from daily SOFR rates. Since this index is published in a daily basis officially, there is no need to make it. But in the process of pricing SOFR swaps and floating rate notes, this sort of calculation is needed. Want to share your content on R-bloggers? click here if you have a blog, or here if you don't.
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SOFR Rates and Index
LIBOR will transition to an alternative reference rate. The SOFR(Secured Overnight Financing Rate) is the risk-free alternative reference rates for USD and is an in-arrears rate. Unlike LIBOR, SOFR is a secured overnight rate, not a forward looking term rate. SOFR Averages (30-, 90-, and 180-calendar days) are constructed by the geometric average of the daily rates. There are two method to make them. The first is to use the daily rate directly and the second is to use the SOFR index.
Before going into SOFR Averages, we will calculate SOFR Index at first. The following pages are the information regarding the SOFR.
Additional Information about Reference Rates Administered by the New York Fed (https://www.newyorkfed.org/markets/reference-rates/additional-information-about-reference-rates#sofr_ai_calculation_methodology)
SOFR Averages and Index Data (https://www.newyorkfed.org/markets/reference-rates/sofr-averages-and-index#historical-search)
Daily SOFR rates can be downloaded at the following page.
Secured Overnight Financing Rate (SOFR) (https://fred.stlouisfed.org/series/SOFR)We try to replicate the SOFR index from the following page.
Daily indicative SOFR averages and index (Apr. 2018 – Feb. 2020) (https://www.newyorkfed.org/medialibrary/media/markets/historical_indicative_sofr_avg_ind_data.xlsx)The above excel file have the following form (to get all visible rows of averages, some selected rows are hidden)