Convexity adjustment for Eurodollar futures
A key difference between a futures contract and a forward contract is daily settlement: the instrument is daily marked-to-market. If the value of the futures increases, this creates excess margin cash; if value declines, there will be a margin call (when the maintenance level is reached). Therefore, a Eurodollar futures contract has more volatility than a similar forward rate agreement (FRA). This implies a slightly higher rate.
[
go to Youtube.com
]
Time
: 5 min
12
Added
: 03/09/08 18:39
Send with Gmail
Videos
(1)
|
Blog posts
(4)
1
Results
