Calculating compounded realised rates can be a challenge. Whilst the Quants are familiar with the International Swaps and Derivatives Association (ISDA) formula below as a mainstay of overnight index swap (OIS) calculations, the wider market might be forgiven for developing a headache if they stared at it for too long.
Unlike LIBOR which uses forward looking term rates, SONIA requires the calculation of compounded rates over a look-back period. Calculating those rates is a challenge for many in the market, requiring the download of hundreds of fixings and application of compounding logic.
Back in March the Risk Free Rates (RFR) working group called for a calculator to be built "to support the adoption of SONIA based instruments" and launched a consultation on standard conventions to use. In May an article on GlobalCapital underlined those calculation challenges and suggested an alternative way forward using indices.
In response to customer demand, NatWest Markets is announcing the launch of nwm.RealisedRate.com to help with these calculations.
Following on from the release of our standalone calculator in June, this next evolution of the toolset demonstrates our commitment to helping the industry as a whole cope with the challenges of moving to SONIA.
This free website provides compounded SONIA rates in all major tenors, a SONIA calculator for bespoke start and end date calculations and a SONIA Realised Rate Index ‘RRIX’ baselined from the start of reformed SONIA on 23 April 2018. The calculation results can be embedded in applications or spreadsheets via a program interface.
Following the launch, NatWest Markets is seeking industry feedback to further refine the application and API. The development will be market led in order to help a wide range of end users with their transition to the new rates.