How SOFR Uses Volume-Weighted Medians and Percentiles

Summary

The document explains two volume-based statistics used in publishing secured overnight financing rates. For a volume-weighted median, transactions are ordered by their rates, then their dollar volumes are accumulated until the midpoint of total volume is reached; the rate at that point is the median. This differs from a simple median, which gives each transaction equal weight regardless of size. The document also notes that the published median is rounded to the nearest basis point.

It asks what a 25th volume-weighted percentile means in the context of removing low-rate DVP repo trades. Applying the same cumulative-volume logic, that percentile is the rate at which a quarter of the total transaction volume lies at or below it. The excerpt gives definitions and context but does not work through a numerical example, explain boundary handling, or detail how the percentile cutoff is applied to ties.

Key ideas

• A volume-weighted median is the rate where cumulative transaction volume reaches half of the total.
• Transactions are ordered by rate, and larger trades contribute more weight than smaller trades.
• The published median is rounded to the nearest basis point.
• A 25th volume-weighted percentile marks the rate at which cumulative volume reaches one quarter of the total.

Tags

# SOFR - calculation of the volume-weighted median and percentile


# SOFR - calculation of the volume-weighted median and percentile












Federal Reserve Bank of New York web page provides some information on the computation of the SOFR rate.

#### Part 1

According to this webpage, the SOFR is calculated as the volume-weighted median:

"The SOFR, the BGCR, and the TGCR are each calculated as a volume-weighted median, which is the rate associated with transactions at the 50th percentile of transaction volume. Specifically, the volume-weighted median rate is calculated by ordering the transactions from lowest to highest rate, taking the cumulative sum of volumes of these transactions, and identifying the rate associated with the trades at the 50th percentile of dollar volume. At publication, the volume-weighted median is rounded to the nearest basis point."

Question 1: What does exactly "a volume-weighted median" mean?

#### Part 2

According to the webpage presented at the begining of my post:

"DVP repo transactions with rates below the 25th volume-weighted percentile rate are removed from the distribution of DVP repo data each day."

Question 2: What does exactly "25th volume-weighted percentile" mean?

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.