Interpreting SOFR Futures’ Dollar Value per Index Point

Summary

CME SOFR futures are quoted using an index equal to 100 minus the annualized compounded SOFR rate over the contract’s reference period. The document gives the dollar value of an index point as $2,500 for a three-month contract and about $4,167 for a one-month contract. These amounts determine how a change in the quoted index translates into a contract’s dollar value.

The contracts are not formally defined by a face value. Instead, their economics can be understood through the relationship between an interest rate, a percentage point, and the contract period: the three-month contract’s point value corresponds to a hypothetical $1 million notional, while the one-month contract’s corresponds to $5 million. These are useful equivalent notionals, rather than contractual face amounts. The explanation is specific to the cited CME contract conventions and does not discuss margin, settlement, or how to value a position across changing rates.

Key ideas

• SOFR futures use an index equal to 100 minus the annualized compounded SOFR rate over the reference period.
• A three-month SOFR futures index point is worth $2,500.
• A one-month SOFR futures index point is worth about $4,167.
• The contracts are specified by their dollar value per index point rather than a formal face value.
• Equivalent notionals help interpret point values, but they are not stated contract face amounts.

Tags

# Face Value of SOFR futures


# Face Value of SOFR futures












What is the face value of CME 1M and 3M SOFR future contracts? The face value of CME 3M Eurodollar Futures is 1 million.

## Answer by Chris Taylor (score 6, accepted)

https://quant.stackexchange.com/a/44179

The 3M futures are worth \$2500 per index point and the 1M futures are worth \$4167 per index point.

The index is

$$P = 100 - R$$

where R is the compounded SOFR (annualized) over the reference period.

The contracts don't have a face value (they are defined in terms of the number of dollars per index point) but you can think of the 3M futures as having a \$1 million face value and the 1M futures as having a \$5 million face value, since

$$2500 = 1000000 \times \frac{1}{100} \times \frac{3}{12}$$

$$4167 \approx 5000000 \times \frac{1}{100} \times \frac{1}{12}$$

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.