Table of contents
1. What is SARON?
SARON stands for Swiss Average Rate Overnight. It is a benchmark reference rate for the Swiss franc money market. It is calculated as the average rate of all overnight Swiss franc repo transactions that occur during a pre-determined time interval.
2. How is SARON calculated
SARON is calculated by the SIX Swiss Exchange and is released each business day at 18:00 CET. The calculation is based on a sampling of actual repo transactions and binding quotes from a variety of market participants. The weighted average of these rates is then used to calculate the SARON rate.
3. What is SARON used for?
SARON is used as a reference rate for a variety of financial products such as derivatives, loans and structured products. It is also used as a benchmark for the performance of investment funds and other financial instruments. SARON is an important reference rate as it is used to set the price of a wide range of financial products. It is also used to measure the cost of borrowing and lending Swiss francs.
4. What are the advantages of SARON?
It is a transparent and well-regulated exchange rate. It is calculated daily, making it a more up-to-date and relevant benchmark than other reference rates. It is used by a wide range of market participants, making it a widely accepted benchmark.
SARON was introduced in Switzerland as an alternative to the Libor, which had fallen into disrepute due to manipulation. In contrast to the Libor, SARON is linked to actual transactions on the Swiss money market and is based on a larger volume. SARON also reflects local interest rate conditions better than the global Libor interest rate and is regulated by the Swiss National Bank.
5. Disadvantages of SARON
SARON is not directly linked to an underlying asset, which makes it more susceptible to manipulation than other benchmark rates. It is based on repo transactions, which are subject to market volatility. For this reason, a SARON compounded over three months (SARON Compound, SAR3MC) is often used.