I have been drawn into lots of LIBOR replacement questions and to myself I started asking few fundamental questions. Let's take an example USD LIBOR is a 3M forward unsecured rate, while SOFR is a secured overnight rate. I don't think one can be interchanged with other in a straight forward manner.
- How do you interchange a forward rate with a secured overnight rate?
- In case of Cross Currency Swaps let' say cable swap. SONIA is unsecured. Now do you modify your pricing with one end being secured overnight rate and other being unsecured overnight rate to replace a forward rate?
- If you use a spread adjustment, will it be single? dynamic, if dynamic? or term structure? How do you justify this?
- how do you agree on a spread number with the counterparts?