Estimating a SOFR Swap Coupon Before Its First Fixing

Summary

The document asks how to value the first floating coupon of a fixed-to-floating interest rate swap when its SOFR observation has a ten-day lookback and the coupon period has begun, but its fixing is still in the future. The specific question is how to estimate that coupon when marking the swap at the period start or on a later date before the fixing is known.

The author says later coupons can be estimated using forward rates derived from spot rates supplied by a market data provider. The post does not include an answer, pricing formula, market data, or worked example for the partially elapsed first coupon. It therefore identifies a practical valuation issue rather than teaching a settled method. Any implementation would need to account for the swap’s observation schedule and the information available on the valuation date; the document does not resolve those details.

Key ideas

• The question concerns valuing a SOFR-linked swap coupon before its first fixing is realized.
• A ten-day lookback shifts the SOFR observation dates relative to the coupon period.
• The author proposes forward rates from spot rates for later coupons, but gives no method for the first coupon.
• The post contains no worked valuation or answer, so it leaves the treatment of the partly elapsed period unresolved.

Tags

# Swap IRS - SOFR lookback


# Swap IRS - SOFR lookback












I have a fixed-float swap valuation to realize. The floating leg is referenced to SOFR with a 10 days lookback. The first coupon has already started, on 01/09/2023, and ends on 01/12/2023. The first coupon fixing is realized on 15/11/2023.

How do I evaluate the first floating coupon interest rate if I want to evaluate the swap MtM on 01/09/2023 or on a later date? (i.e. before the first fixing is realized).

I understand that for later coupons I can evaluate the floating coupons rate with the help of forward rates (constructed from spot rates that I retrieve from my market data provider bloomberg (490 icvs curve)).

Thanks for your help ! :)

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