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Futures price

  • In a treasury futures contract the price of the bond is not easy to deliver because the cheapest to deliver bond is not known.
  • However, if the cheapest to deliver bond and its delivery date is known we can call upon the equation which considers discreet payouts from an underlying and can be given as below:
F0 = (S0-I) ert

Eurodollar Futures:

  • A Eurodollar is a dollar deposited in a foreign bank/US bank outside the United States
  • Eurodollar futures are futures on the 3-month Eurodollar deposit rate (same as 3-month LIBOR rate)
  • Long position => agrees to give a loan at the determined price
  • One contract is on the rate earned on $1 million
  • A change of one basis point or 0.01 in a Eurodollar futures quote corresponds to a contract price change of $25 (1mm * 0.01% * 90/360)
  • When it expires (on the third Wednesday of the delivery month), final settlement price is 100 minus actual three month deposit rate.
  • Contract Price = 10,000*[100 – 0.25*( 100 – Q)]
    • Q = Quoted Price


Suppose you buy (take a long position in) a Eurodollar futures contract on November 1
The contract expires on December 21
The prices are as shown
How much do you gain or lose
On the first day
On the second day
Over the whole time until expiration?

Date Quote
Nov 1 97.12
Nov 2 97.23
Nov 3 96.98
Dec 21 97.42

Day 1: increase by 11 basis points, hence gain = 11*25 = $275
Day 2: decrease by 25 basis points, hence loss = 25*25= $625
Until expiration: increase by 30 basis points, gain = 30*25 = $750

Date Quote
Nov 1 97.12
Nov 2 97.23
Nov 3 96.98
Dec 21 97.42


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