Is this accurate ? I got it from the lehman brothers manual .



Spot/Next Points: -0.45

3-Year Points: -1040 or (-0.95 per day)

Sell/Buy $10 USD /JPY three years out into the future. This leaves us short USD and long JPY until the far leg of the trade.

Each day, we fund our short USD position at 0.45 per day, and earn 0.95 per day on forward leg. This is a positive net carry of 0.5 per day.

To determine the positive carry: 10USD * [0.005 / 120.00 (spot rate)] = $417 /day Here, we are overlent USD and thus benefit from rates going down. Therefore we are looking for rates to move lower.

If the bid/ ask spread on the three-year is 20 points, we would pay \$16,000 (0.0020 * \$10,000,000) . At a positive carry per day of 0.5, we would need 40 days (20 days / 0.5) of steady rates or rates moving in our favor in order to break even. Points moving in our favor would effectively shrink or eliminate the large bid-ask spread.

page 71 : https://web.stanford.edu/~jbulow/Lehmandocs/docs/BARCLAYS/LBEX-LL%203356480-3356609.pdf

  • $\begingroup$ Hmmm. 0.0020 * \$10,000,000 is 20,000 not 16,000 isn't it? Which would then match 40 days at 0.5 per day. A typo of some kind in the intermediate calculation? $\endgroup$
    – nbbo2
    Commented Apr 10 at 9:59


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