Building OIS curve from SOFR (or Fed Funds) Futures

[LZ1153]

I found there was a thread in url below discussing this requirement back in 2020. I'm wondering if we can have a way to build OIS curve using SOFR or Fed Fund futures that stepping on meeting dates, eg: FOMC.

https://sourceforge.net/p/quantlib/mailman/message/36789736/

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[LZ1153]

Thank you @lballabio for keeping this issue alive. By chance there is a workaround to build step curves from futures at the moment please?

[lballabio]

Hi, I'm not sure what the request was — is it how to add jumps to the curve corresponding to meeting dates?

[LZ1153]

Hi @lballabio . Thanks for your response. On top of jump, the request was to allow forward rate to be flat and changed (stepped) on meeting day. By referring to this screenshot taken from your blog, I understand flat can be stepped if we feeding Meeting OIS rates to DatedOISBuilder. I'm trying to achieve the same result by using "OvernightIndexFutureRateHelper" or "SofrFutureRateHelper" but it seems both helper doesn't support this "stepped" feature on specific date directly. Hope my explanation is clearer now.

https://www.implementingquantlib.com/2023/09/ametrano-bianchetti.html

[lballabio]

The constructor of OvernightIndexFutureRateHelper takes a value date and a maturity date explicitly. Setting it up so that the maturity date equals the meeting date should give you a node at that point, as you want.

[LZ1153]

Thanks for your response, @lballabio . I think the OvernightIndex futures are either IMM dated or mature at end of month and doesn't coincide with meeting dates. Appreciate if you could share how I can achieve the desired result please.

[lballabio]

I confess I'm not sure what you're after. The steps in the curve are not added externally in some way; they're the result of keeping forwards flat between the nodes of the curve, which in turn are determined by the maturities of the quoted instruments. This is why using DatedOISBuilder works; the custom maturities of the OIS determine the nodes. If you want a node at a meeting date which doesn't correspond to an instrument, there's no provision for that in the implementation.

[LZ1153]

Thanks @lballabio . I think something similar in CME Fedwatch tool in this URL. By using SOFR futures, there is a way to predict what is the market expectation on FOMC decision. That's basically what I trying to achieve - using OvernightIndexFutureRateHelper yet solving for a flat forward rate between FOMC meetings date. Hopefully this gives a clearer picture. Cheers.

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

[lballabio]

You can use the two parameters at https://github.com/lballabio/QuantLib/blob/v1.38/ql/termstructures/yield/oisratehelper.hpp#L52-L53 to specify that a given OIS helper should set the node at a specific date (i.e., a meeting date if you want that).

[LZ1153]

Brilliant! That's exactly what I am looking for based on your explanation! I will give it a try and close the issue if that works. Much appreciated @lballabio .

[LZ1153]

Hi @lballabio , I found Pillar Date is not supported for both SofrFutureRateHelper and OvernightIndexFutureRateHelper. Am I missing anything please? If it is indeed supported please will be much appreciated if you could show me simple implementation?

[lballabio]

Hmm, you're right, it's not supported by those helpers. It should be implemented.

[LZ1153]

Thanks @lballabio . Think we should have that added for SofrFutureRateHelper and OvernightIndexFutureRateHelper please could expert help please?

[lballabio]

I opened #2256, let's see if someone picks this up. In the meantime, if what you're looking for are the expected rates before and after a meeting date, can't you calculate it from the corresponding futures prices without going through bootstrapping?

[LZ1153]

Yes - I could at the mean time as workaround. Thanks @lballabio

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This issue was automatically marked as stale because it has been open 60 days with no activity. Remove stale label or comment, or this will be closed in two weeks.

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This issue was automatically closed because it has been stalled for two weeks with no further activity.