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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
5/26/2022 110.3077
5/25/2022 112.0346
5/24/2022 111.5424
5/23/2022 112.1514
5/20/2022 118.8056
5/19/2022 114.3432
5/18/2022 173.0797
5/17/2022 173.0797
5/16/2022 153.5022
5/13/2022 143.2073
5/12/2022 148.6371
5/11/2022 119.1813
5/10/2022 131.5821
5/9/2022 135.8475
5/6/2022 133.772
5/5/2022 140.3259
5/4/2022 136.8255
5/3/2022 126.4495
5/2/2022 144.3614
4/29/2022 146.8556
4/28/2022 145.6855
4/27/2022 137.1692
4/26/2022 137.3442
4/25/2022 137.4484
4/22/2022 143.519
4/21/2022 138.2671
4/20/2022 133.4217
4/19/2022 133.2743
4/18/2022 132.8715
4/14/2022 140.662
4/13/2022 123.9567
4/12/2022 128.7711
4/11/2022 138.0423
4/8/2022 138.6048
4/7/2022 131.3227
4/6/2022 130.4226
4/5/2022 127.1642
4/4/2022 120.4435
4/1/2022 118.8799
3/31/2022 115.0657
3/30/2022 117.1760
3/29/2022 120.2225
3/28/2022 135.258
3/27/2022 136.412
3/24/2022 113.027
3/23/2022 112.994
3/21/2022 98.976
3/15/2022 113.034
3/14/2022 111.870
3/11/2022 104.460
3/10/2022 106.223
3/9/2022 117.571
3/8/2022 131.069
3/7/2022 142.750
3/4/2022 136.364
3/3/2022 121.323
3/2//2022 118.896
3/1//2022 125.267
2/28/2022 103.741
2/25/2022 96.409
2/24/2022 92.971
2/23/2022 98.858
2/22/2022 97.943
2/18/2022 99.543
2/17/2022 99.862
2/16/2022 104.995
2/15/2022 108.293
2/14/2022 114.642
2/11/2022 110.813
2/10/2022 95.153
2/8/2022 88.763
2/7/2022 85.432
2/4/2022 86.592
2/3/2022 81.828
2/2/2022 80.521
2/1/2022 82.763

CONTACT

222 South Riverside Plaza, Suite 1200
Chicago IL, 60606
P. (800) 367-3349
fig@rjobrien.com

rjo corporate

© 2021 R.J. O'Brien & Associates LLC.
Futures trading involves the substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results.