9 votes

What is the industry standard pricing model for CME-traded Eurodollar future (American) options?

Having traded these options for a number of years I have some insight. It’s my belief that those that make a living specifically out of these options do have tree-style models that take into account ...
dm63's user avatar
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5 votes
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Hedging EURUSD with negative rates

For a US investor to hedge the bonds the investor would (1) Buy EURUSD in the Spot market, (2) Buy the German bonds with the EUR proceeds, (3) Short EURUSD in the forward market to provide a ...
Alex C's user avatar
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5 votes
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How does one calculate the Libor future contract price?

The quoting convention must be explained somewhere in your book. For Eurodollar futures, this convention is 100 - yield, 92 means the yield is 8% per annum, so for one quarter you need to divide this ...
Lliane's user avatar
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5 votes
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Difference between ED futures and ZCB

In general futures contracts are leverage instruments. They never require the investment of principal. They do however require margin: you need to fund your account at a futures exchange so that they ...
Attack68's user avatar
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4 votes
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How did traders calculate that the expected number of rate hikes is 4 based on eurodollar futures on 15Feb2018?

Yield of Dec19 Future - Current 3Months Libor / 25 bps (1 rate hike) Libor 3M = 1.84 % Price of Dec 19 Future (Ticker EDZ9) = 97.18 = 2.82 % Number of hikes = (2.82 - 1.84)/0.25 = 4 Please note ...
Lliane's user avatar
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3 votes
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Interest Rate Futures Question from Hull, 8e

The future is at 92, so the interest rate is 8% per year (!the good old days!) or 2% a quarter. Two percent interest on one million is 20,000. So one future covers the interest on 980,000 initial ...
Alex C's user avatar
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3 votes
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Difference between settlement of Eurodollars and FRA

Futures trading are settled on a daily basis meaning in the end of day, your account will be adjusted by your PnL. So of course your payment on T1 is not discounted. However forward is settled only ...
numerairX's user avatar
  • 609
3 votes
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Long Forward Rate Agreement, short Eurodollar futures

hypothetically if we assume that $R_{fra}=R_{fut}-\frac{1}{2} \cdot \sigma^2\cdot T^2$ holds (convexity adjustment) and you are able to observe $R_{fra}$, $R_{fut}$ and $T$ then you can extract ...
Nicholas's user avatar
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3 votes

Calculate interest rate swap curve from Eurodollar futures price

To answer the first question directly, the swap in question is a 1 Year swap of a fixed rate vs 3 month Libor. The swap starts in Mid-June (the date of the ED futures expiration) and goes until the ...
Alex C's user avatar
  • 9,372
3 votes

Calculate interest rate swap curve from Eurodollar futures price

Consider a fixed-for-floating swap with reset dates $T_0, \ldots, T_{n-1}$ and payment dates $T_1, \ldots, T_n$, where $0<T_0 < \cdots < T_n$. We assume that the swap exchanges the floating ...
Gordon's user avatar
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3 votes

How does Bloomberg calculate the 2 year swap rate using the current eurodollar futures prices?

Convexity adjustment works like this For references, see: Hull. 2002. Options, Future and Other Derivatives p. 566. Piterbarg and Renedo. 2006. Eurodollar Futures Convexity Adjustments in Stochastic ...
AKdemy's user avatar
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2 votes

Calculating Implied Forward Rates from Eurodollar Futures Quotes

What you have calculated, correctly as far as I can tell, is a December-starting 1-year compounded Libor 3m forward rate. That's a weird-sounding thing, but it is essentially equivalent to a December-...
atkins's user avatar
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2 votes

What is the industry standard pricing model for CME-traded Eurodollar future (American) options?

To add to @DM63's answer, as a secondary characterisitc, vol may also matter in deciding the european approximation impact. As vol goes to 0, you want to exercise as soon as possible, because the ...
Arshdeep's user avatar
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2 votes
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Derive a mathematical equation for Eurodollar future rate

there are many ways to solve Vasicek system, for me personally I markov short rate approach. Without going into the details of proofs: Note that eurodollar future is calculated under risk neutral Q ...
numerairX's user avatar
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2 votes
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Price Alignment Interest(PAI) Convexity Effect

PAI is the interest paid on the VM. Assuming perfect collateralization (i.e. collateral always reset to the derivative NPV) it is shown (see Piterbarg "funding beyond discounting") that funding is ...
Antoine Conze's user avatar
2 votes
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Eurodollar Future Key Rate Duration

Because you are keeping the 6m rate constant. Therefore, if the spot 3m rate goes down, the forward must go up.
dm63's user avatar
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2 votes

Hedging treasury bond with Eurodollar futures

This book describes something that looks like DV01 hedging of the bond with eurodollar contracts. But the reality is that the underlying rates of the 2 kind of instruments are different. The bond ...
Ezy's user avatar
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2 votes

Hedging treasury bond with Eurodollar futures

Take a 5Y bond, say buying \$10 million dollar notional and calculate the PV01 using you favourite method for calculating bond risks, e.g. some duration formula. Lets say this Pv01 is \$4,500 Now ...
Attack68's user avatar
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2 votes

Eurodollar Futures Contracts Technical details

I don’t know what text book you are reading, but a CME Eurodollar contract does not represent a commitment to enter into a time deposit. On the contrary , it is cash settled at maturity , using the ...
dm63's user avatar
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2 votes
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LIBOR rate and eurodollar futures

No, an investor that buys or sells the contract at 99.80 will make zero money if the contract expires at that price. (Not sure what you mean by lending. )Also note that investors may make or lose ...
dm63's user avatar
  • 17k
2 votes

Is there a dollar index against emerging market currencies

There is the Bloomberg-JPMorgan Asia Dollar Index, aka "ADXY". Not specific to EM as a whole and you can question the extent to which the currencies included are emerging (e.g. SGD, TWD). ...
user42108's user avatar
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2 votes
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Is there a dollar index against emerging market currencies

You should look at Federal Reserve's H10 https://www.federalreserve.gov/releases/h10/ There's an EM nominal index (i.e. not inflation adjusted) daily and monthly: https://www.federalreserve.gov/...
Dimitri Vulis's user avatar
1 vote
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Eurodollar futures trading and mechanics

For the first question, your calculation is correct and there is no need to factor in the days to expiration. For the second question. If you were long the Jun 23 contract at 99.275, you want to know ...
dm63's user avatar
  • 17k
1 vote

USDX before and after EURO

The current weights are: EUR: 57.6%; JPY 13.6%; GBP: 11.9%; CAD: 9.1%; SEK: 4.2%; CHF: 3.6%. (Observe that this list still does not include some major trading partners of the US such as China, ...
Dimitri Vulis's user avatar
1 vote

Creating yield curve from exchange-listed products only?

To be clear, these are three different dollar interest rates? All US, not EUR, JPY, GBP, CAD etc. cross-currency comparisons? If just USD, how far forward do you need to construct your curve? If more ...
demully's user avatar
  • 5,071
1 vote

Creating yield curve from exchange-listed products only?

There is a Fed Funds/UST basis. You can't just 'splice' FF futures and Treasuries - they're two different markets. e.g. over last ~5y, 2y UST/OIS spread has ranged from ~-10 to +30.
user42108's user avatar
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1 vote
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Black Scholes on Eurodollar Options

At least 2 problems here I think. 1) the CME vols are of the implied rate, not the price. Therefore express underlying price and strike in yield terms by taking 100-price and 100-strike. 2) the ...
dm63's user avatar
  • 17k
1 vote

CME Eurodollar Option qoute

Unable to take screenshot in my phone. I will post three screenshots of my calculator screen.
Bhaskar Gudimetla's user avatar
1 vote
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CME Eurodollar Option qoute

Your description of the contract is incomplete, is this the december call on the september 19 future or something else ? In all cases it's in basis points as explained in the contract description and ...
Lliane's user avatar
  • 2,888
1 vote

How did traders calculate that the expected number of rate hikes is 4 based on eurodollar futures on 15Feb2018?

In my experience Chinese whispers between IR traders and bank/institution strategy/researchers and then journalists is rife. Hikes/cuts are predicted by traders based on FedFund futures or meeting ...
Attack68's user avatar
  • 9,994

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