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Earlier I asked a general question about how probabilities are derived from futures prices for derivatives related to the Bank of Canada's policy rate.

I have been advised the Overnight Index Swaps (OIS) are the best vehicle to use, in this case three month CORRA futures.

3-month CORRA futures are traded on the Montreal Exchange.

The Exchange gives an example of calculating the probability of a rate change based on these future prices.

In the example, the prediction is made from only 12 days away. Suppose we are six months away with a few BoC announcements between "today" and the BoC announcement we care about.

One of the terms in the example is described as:

Current geometric average since last announcement
(and expected to remain constant until the BoC announcement)

How can this be calculated when the rates that are required to calculate the geometric average are not known exactly, but are predicted with a certain probability?

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  • $\begingroup$ I asked that general question earlier. Now I have a much more specific question dealing with 3-month CORRA futures and inputs into the probability calculation. $\endgroup$
    – ixodid
    Mar 24, 2023 at 20:32
  • $\begingroup$ A future is not an OIS swap. You can look here for an example with futures. $\endgroup$
    – AKdemy
    Mar 25, 2023 at 2:13

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