# Tag Info

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I have written a response here: Why are FRA/futures convexity adjustments necessary? The credit risk is eliminated in either case since, these days the future will trade on the exchange and the FRA contract will be settled with the clearing house. There might actually be some value created dependent upon which futures exchange you trade: LCH versus EUREX can ...

4

Since contracts on physical goods have associated costs, it makes sense that the term structure curve would be upward sloping. Since there is no cost associated with delivery for the VIX and contango is considered to exist in healthy markets, is the upward slope simply accounting for the greater potential for the market to become unhealthy over longer ...

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The below is an open-ended answer: more of an additional question on top of the original question. I am looking for answers and am thinking of merging the below into the original question asked by Permian. Interesting, been asked this very question in a recent interview, and having given the "clearing removes credit risk" answer, the interviewer ...

3

I guess the author's argument is that, because of the frequent settlements, one needs to invest the mark-to-market gains and fund the losses. As the exchange traded futures contract is negatively correlated to interest rates, the mark-to-market gain happens when interest rates are low, so not a great time to invest, while the loss happens when interest rates ...

1

didn't read the book, but I would guess the future contract all else being equal. the point being credit risk. as mentioned the future contract is settled daily by the exchange. forwards are traded over the counter and settled at expiration, by that time, the party owing to the other could default on the payment.

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Aspects that I presently see are: 1. The higher the liquidity, the better. 2. A contract with the smaller currency equivalent is better, if everything else is the same - this makes a finer position sizing possible (relevant for not so big portfolios). So prefer mini instruments over normal instruments. 3. Taking an instrument in the own ('home') ...

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A CME SOFR futures price in expiration is equal to 1 − R where R is an arithmetic average of observed SOFR rates during the contract month for the one month futures: $$P_{1m} = 1 - R$$ $$R = \frac{1}{N}\sum_{t}r_t$$ and the compounded daily rate during the reference quarter for three-month futures: $$P_{3m} = 1 - R$$ R = \frac{360}{N} \left( \prod_{t}( 1 + ...

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At the minimum, the difference is the hedging instrument's market cost, liquidity (especially for dynamic hedging), funding costs, and counterparty risk costs (e.g., exchange traded futures vs. OTC swaps). Options in particular can backfire possibly complicating the vega and gamma picture of the overall portfolio (main and hedge positions), if care is not ...

4

It's done in 2 steps: 1) First you bootstrap OIS curve independently from Libor curve, get OIS discount factors 2) Then use these to bootstrap Libor curve (using OIS discount factors instead of Libor ones,Libor used for projections only)

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