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hw0799

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发表于 2011-7-13 14:33 | 只看该作者

Eurodollar Futures

liability, conceptual, understand, long
I'm having a really hard time trying to understand this contract. From my understanding, it's deliverable obligation is a 90 day t-bill which is somehow indexed to LIBOR? Can someone please help me understand this intrument.

So:

If you are long a Eurodollar contract what does that mean?
How is it priced at initation? (Not looking for maths just a rough conceptual explanation)
If you were hedging a floating LIBOR liability why would you do this by going long a Eurodollar futures contract?
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Newhuman

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2#
发表于 2011-7-13 14:33 | 只看该作者
Any chance on getting a bit more of an explanation please?

You said it's like a FRA. FRA is simple enough. 2x4 FRA: you get the forecast of market rates in two months for two month loan. Then in two months time you discount the difference between actual and contract rate to PV. So how is this similar to a Eurodollar contract?

When you are buying a contract, what exacly are you agreeing to?

Similarly, when you short a contract, what's your liability at expiration?

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spreads

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3#
发表于 2011-7-13 14:33 | 只看该作者
charly_blue Wrote:
-------------------------------------------------------
> 3. Floating LIBOR Liability means that you are to
> pay LIBOR (floating) and receive Fixed.
> --> If LIBOR goes up (Eurodollar contract goes
> down), you lose money because you pay more.
>
> Thus, to hedge the position, I would say that you
> short the Eurodollar future contract.
>
> If what is stated below is correct, my analysis is
> right:
> The only part I am not sure of is: If LIBOR goes
> up Eurodollar contract goes down.

Sorry should have been more specific, you are long a floating rate bond indexed to LIBOR and need to hedge that.

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flyinggirl

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4#
发表于 2011-7-13 14:33 | 只看该作者
3. Then, being long a floating LIBOR bond is a having a floating LIBOR asset. (NOT liability)

Correct?

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troymo

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5#
发表于 2011-7-13 14:33 | 只看该作者
eurodollar future is like short-term zero bond with future settlement.

future settlement means you dont have to pay anything for it now (except margin of course)

long futures interest rate risk is equal to int. risk of long zero bond.

rates go down, future price goes up, you earn

your original position: long floater, rates go down, you get smaller coupon

therefore to hedge it you go long futures

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tikfed

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6#
发表于 2011-7-13 14:33 | 只看该作者
pfcfaataf Wrote:
-------------------------------------------------------
> eurodollar future is like short-term zero bond
> with future settlement.
>
> future settlement means you dont have to pay
> anything for it now (except margin of course)
>
> long futures interest rate risk is equal to int.
> risk of long zero bond.
>
> rates go down, future price goes up, you earn
>
> your original position: long floater, rates go
> down, you get smaller coupon
>
> therefore to hedge it you go long futures


Thanks A LOT. Nice, simple, straight to the point explanation.

Thanks

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