Skip to content
All library documents

Bootstrapping ESTER and SOFR Curves from Futures

Article Quant Q&A · Author: opt
Read the original

Summary

The document asks how to construct term structures for ESTER and SOFR, daily reference rates that do not necessarily have established swap markets. It contrasts the usual curve-building approach with the limited instruments available for these newer benchmarks.

The response points to SOFR futures as a source for deriving forward rates, citing Federal Reserve material on indicative forward-looking SOFR term rates. It suggests ESTER may follow a similar path as markets develop. The discussion offers a direction rather than a full QuantLib implementation or detailed bootstrapping procedure. Its main caveat is market availability: swap or futures markets need sufficient liquidity for reliable curve construction, and the document expresses hope that they will develop as LIBOR is phased out.

Key ideas

  • SOFR forward rates can be derived from SOFR futures.
  • ESTER curve construction may follow a similar approach as markets develop.
  • Curve bootstrapping depends on having sufficiently liquid instruments linked to the reference rate.
  • The document does not provide implementation details or a complete QuantLib method.

Tags

Fixed incomeFuturesDerivatives pricing
Full text
# Bootstrap ESTER and SOFR curves with Quantlib Python


# Bootstrap ESTER and SOFR curves with Quantlib Python












Is it possible to bootstrap the new ESTER and SOFR term structures in Quantlib? More in general, does the process work as the usual one? Given these are simple indices that are published on a daily basis I am not sure how the bootstrapping would work since there are no swaps on ESTER for example.

## Answer by pyCthon (score 1)

https://quant.stackexchange.com/a/49328

I'm not sure about ESTER but for SOFR, the FED has stated that the way to get forwards is derive them from SOFR futures.

https://www.federalreserve.gov/econres/notes/feds-notes/indicative-forward-looking-sofr-term-rates-20190419.htm

See section A.2 in this paper:

https://www.federalreserve.gov/econres/feds/files/2019014pap.pdf

The answer looks to be similar for ESTER as well, the hope is by the decommissioning of LIBOR, swap and or futures markets will be liquid enough.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.