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RFR Alts vs FIG@RJO – Proposed iVol-based Risk Add-On

Adding Risk to Risk Free Benchmarks

Adding a risk-sensitivity to the new RFRs is absolutely do-able today—quantifiable, executable and hedge-able in virtually any size, today. Part of the confusion is the ‘ask’: “We need credit sensitivity!”. The term ‘credit’ is imprecise and excessively inclusive. ‘Credit’ has become synonymous with ‘sensitivity to liquidity’, ‘sensitivity to all non-interest rate risk’ and/or ‘sensitivity to generic market stress levels’.

So, seeking to alter the new RFRs to reflect stress in the system is not really about ‘credit’ per se. The RFR add-on is really about capturing events that cause bank stress—increases in bank VaR levels, elevated market volatility.

The yield equivalent to implied volatility of options on Treasury Futures fulfills the main objectives to be the ‘risk add-on’ to new RFR benchmarks: near infinite liquidity, no data cost, accessible to virtually all institutions via exchange-traded futures market, can fit into existing LIBOR+x systems, works when bank stress is elevated. Contact The Fixed Income Group at RJO with questions on calculations, or to receive a copy of an Excel spreadsheet to download the data: fig@rjobrien.com 

Dates Yld BPs
2/25/2021 110.1099
2/24/2021 69.4253
2/23/2021 67.7570
2/22/2021 74.5861
2/19/2021 70.1525
2/18/2021 61.8783
2/17/2021 68.3095
2/16/2021 65.9103
2/15/2021 59.1872
2/12/2021 51.5601
2/11/2021 49.0550
2/10/2021 49.2401
2/9/2021 50.0507
2/8/2021 51.9164
2/5/2021 54.4012
2/4/2021 54.4366
2/3/2021 54.0638
2/2/2021 54.7854
2/1/2021 53.2141
1/29/2021 55.7504
1/28/2021 52.0149
1/27/2021 49.8349
1/26/2021 47.6549
1/25/2021 46.6777
1/22/2021 47.5800
1/21/2021 47.3485
1/20/2021 45.7305
1/19/2021 49.7597
1/18/2021 52.6890
1/15/2021 48.6971
1/14/2021 54.9078
1/13/2021 50.1438
1/12/2021 55.5903
1/11/2021 57.0809
1/8/2021 52.5097
1/7/2021 52.5998
1/6/2021 52.8553
1/5/2021 54.9800
1/4/2021 57.8142
1/1/2021 56.8242
12/31/2020 55.8278
12/30/2020 52.8457
12/29/2020 50.9638
12/28/2020 49.7634
12/25/2020 49.1961
12/24/2020 48.2837
12/23/2020 47.5985
12/22/2020 47.2345
12/21/2020 50.7555
12/18/2020 48.9611
12/17/2020 47.7201
12/16/2020 50.0361
12/15/2020 51.7517
12/14/2020 51.4882
12/11/2020 51.9446
12/10/2020 49.0950
12/9/2020 51.8566
12/8/2020 51.1225
12/7/2020 53.1747
12/4/2020 50.2106
12/3/2020 50.0702
12/2/2020 50.1324
12/1/2020 49.8543
11/30/2020 48.9200
11/27/2020 48.1092
11/26/2020 46.9959
11/25/2020 46.0187
11/24/2020 46.5420
11/23/2020 47.5251
11/20/2020 48.1149
11/19/2020 56.5291
11/18/2020 48.9034
11/17/2020 48.9184
11/16/2020 49.3095
11/13/2020 49.7462
11/12/2020 49.8714
11/11/2020 53.1480
11/10/2020 54.9441
11/9/2020 52.6683
11/6/2020 46.8726
11/5/2020 50.1235
11/4/2020 54.9917
11/3/2020 80.9544
11/2/2020 81.0061
10/30/2020 78.2015
10/29/2020 74.2313
10/28/2020 69.3709
10/27/2020 64.4646
10/26/2020 67.4973
10/23/2020 66.4882
10/22/2020 66.8991
10/21/2020 69.1537
10/20/2020 70.2377
10/19/2020 66.8838
10/16/2020 59.4663
10/15/2020 58.2499
10/14/2020 56.8266
10/13/2020 54.9766
10/12/2020 55.0109
10/9/2020 51.7962
10/8/2020 51.5493
10/7/2020 56.3210
10/6/2020 52.1491
10/5/2020 52.8239
10/2/2020 46.6926
10/1/2020 44.1007
9/30/2020 43.5937
9/29/2020 39.4684
9/28/2020 42.2055
9/25/2020 40.5653
9/24/2020 39.6192
9/23/2020 39.3881
9/22/2020 39.8994
9/21/2020 40.9374
9/18/2020 38.6435
9/17/2020 38.6531
9/16/2020 42.7547
9/15/2020 46.0057
9/14/2020 44.8183
9/11/2020 42.2449
9/10/2020 46.2827
9/9/2020 47.9903
9/8/2020 50.7702
9/7/2020 52.5117
9/4/2020 49.3005
9/3/2020 45.1326
9/2/2020 44.0893
9/1/2020 42.6364
8/31/2020 45.3986
8/28/2020 50.1746
8/27/2020 52.9403
8/26/2020 55.0649
8/25/2020 54.1509
8/24/2020 50.3539
8/21/2020 50.3491
8/20/2020 52.2354
8/19/2020 56.4832
8/18/2020 52.5756
8/17/2020 53.6764
8/14/2020 51.8888
8/13/2020 53.0384
8/12/2020 52.8111
8/11/2020 53.3469
8/10/2020 47.6016
8/7/2020 48.2327
8/6/2020 49.3131
8/5/2020 47.4053
8/4/2020 50.3373
8/3/2020 47.6291
7/31/2020 47.2087
7/30/2020 46.0593
7/29/2020 46.3842
7/28/2020 46.7320
7/27/2020 47.5062
7/24/2020 45.4795
7/23/2020 46.6469
7/22/2020 47.5270
7/21/2020 48.9568
7/20/2020 49.4235
7/17/2020 47.3801
7/16/2020 48.2146
7/15/2020 48.5654
7/14/2020 49.5510
7/13/2020 49.9471
7/10/2020 48.0116
7/9/2020 49.3920
7/8/2020 49.3217
7/7/2020 49.9626
7/6/2020 53.5157
7/3/2020 53.8838
7/2/2020 52.7124
7/1/2020 55.4172
6/30/2020 55.4130
6/29/2020 54.1799
6/26/2020 54.6189
6/25/2020 54.2227
6/24/2020 57.7085
6/23/2020 56.1047
6/22/2020 58.1045
6/19/2020 54.8547
6/18/2020 55.2524
6/17/2020 60.4460
6/16/2020 63.5233
6/15/2020 62.7145
6/12/2020 59.9579
6/11/2020 61.1735
6/10/2020 62.8234
6/9/2020 76.6365
6/8/2020 71.3026
6/5/2020 70.4403
6/4/2020 69.0952
6/3/2020 67.9947
6/2/2020 57.8991
6/1/2020 58.7454
5/29/2020 59.7133
5/28/2020 58.6024
5/27/2020 59.0001
5/26/2020 58.0226
5/25/2020 59.4912
5/22/2020 56.8133
5/21/2020 60.4908
5/20/2020 65.9702
5/19/2020 66.5485
5/18/2020 67.1627
5/15/2020 61.0298
5/14/2020 64.0109
5/13/2020 64.0503
5/12/2020 66.0642
5/11/2020 69.4327
5/8/2020 65.7055
5/7/2020 68.1958
5/6/2020 65.9986
5/5/2020 61.8116
5/4/2020 61.0470
5/1/2020 60.2684
4/30/2020 64.5054
4/29/2020 68.1740
4/28/2020 72.4999
4/27/2020 73.7445
4/24/2020 77.0295
4/23/2020 82.0035
4/22/2020 85.2541
4/21/2020 91.4244
4/20/2020 85.6486
4/17/2020 83.7222
4/16/2020 82.0809
4/15/2020 82.2951
4/14/2020 74.9098
4/13/2020 81.4388
4/10/2020 82.8694
4/9/2020 80.8438
4/8/2020 82.6287
4/7/2020 83.9286
4/6/2020 79.0849
4/3/2020 80.6041
4/2/2020 89.2035
4/1/2020 96.2172
3/31/2020 98.1599
3/30/2020 107.8369
3/27/2020 91.8005
3/26/2020 98.7666
3/25/2020 89.0592
3/24/2020 109.1752
3/23/2020 152.3309
3/20/2020 156.1179
3/19/2020 175.1416
3/18/2020 187.0057
3/17/2020 121.9418
3/16/2020 136.9562
3/13/2020 133.4584
3/12/2020 171.1800
3/11/2020 156.2939
3/10/2020 168.7004
3/9/2020 214.4500
3/6/2020 151.3251
3/5/2020 97.5648
3/4/2020 91.3108
3/3/2020 100.0370
3/2/2020 105.6903
2/28/2020 121.4052
2/27/2020 94.5366
2/26/2020 87.5066
2/25/2020 85.8118
2/24/2020 83.9210
2/21/2020 75.4505
2/20/2020 71.4565
2/19/2020 67.5287
2/18/2020 68.7795
2/17/2020 70.3210
2/14/2020 63.0342
2/13/2020 63.6059
2/12/2020 63.2528
2/11/2020 67.7999
2/10/2020 71.4798
2/7/2020 68.1226
2/6/2020 60.9787
2/5/2020 64.7346
2/4/2020 69.8790
2/3/2020 76.7046
1/31/2020 78.3287
1/30/2020 73.0551
1/29/2020 71.1918
1/28/2020 68.4541
1/27/2020 72.0054
1/24/2020 63.9466
1/23/2020 59.8150
1/22/2020 57.1819
1/21/2020 58.0296
1/20/2020 55.9640
1/17/2020 51.8439
1/16/2020 52.5786
1/15/2020 53.6035
1/14/2020 52.3307
1/13/2020 54.1162
1/10/2020 53.8437
1/9/2020 59.8153
1/8/2020 63.2152
1/7/2020 62.0264
1/6/2020 64.6839
1/3/2020 62.3929
1/2/2020 60.2519

CONTACT

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Chicago IL, 60606
P. (800) 367-3349
fig@rjobrien.com

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© 2020 R.J. O'Brien & Associates LLC.
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