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Compression auctions with an application to LIBOR-SOFR swap conversion

Sep 2018
Working Paper
18-036
By  Darrell Duffie

This note explains a new type of auction based on an existing derivatives risk-management technique known as “compression.” A compression auction can be used to convert centrally cleared contracts on an underlying benchmark, such as the London Interbank Offered Rate (LIBOR), to contracts on a different underlying benchmark, such as the Secured Overnight Financing Rate (SOFR). I first proposed compression-auctions for this purpose in October, 2017