Compression Auctions With an Application to LIBOR-SOFR Swap Conversion

Compression Auctions With an Application to LIBOR-SOFR Swap Conversion

September 10,2018Working Paper No. 3727

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