I am a beginner in financial risk management. learning this as a hobby. Please guide me here.

Here we have 2 examples where one example uses ERIS swap futures and other uses SOFR strip to hedge.

What is the difference ? how to know which one to use ?



10 million loan for 5 years sell 100 YIW eris swap future contracts. Is it same as Sell 10 contracts of SOFR for each quarter (except the current one) for the next 5 years ? Total of selling 190 SOFR contracts (10*4*4+10*3).



100 million 2 year loan. Sell 100 contracts of SOFR for each quarter (except the current one) Total of selling 700 SOFR contracts. Is it same as selling 1000 2 year Eris SWAP futures ?

Thank you.

  • $\begingroup$ The 3 alternatives are (1) OTC interest rate swap with a Bank, (2) Strip of i.r. futures traded on a futures exchange (3) a relatively new product Eris swap futures, which is similar to (1) in how it works but has been designed to trade on a futures exchange marketswiki.com/wiki/Eris_Exchange . (1) is probably the most used, followed by (2) and (3) has not come into much use yet AFAIK, since it is so new. erisfutures.com/cme/volumeopeninterest $\endgroup$
    – nbbo2
    Commented Apr 10 at 23:51
  • $\begingroup$ Look at it from the point of view of the real estate developer in the CME infomercial. He already has relationships with banks (one of which gave him a loan), they will be glad to offer him a swap or other bank product like FRA to manage this risk. He probably has never traded futures, may not have a futures account, and may not even have heard of Eris Futures yet. So the CME faces a hurdle in entering this bank dominated business. $\endgroup$
    – nbbo2
    Commented Apr 11 at 15:31


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