FOREWORD

At a recent conference, I remarked that I felt a little like the Forrest Gump of interest rate futures. One accident after another has placed me in the company of people who have been innovative thinkers and doers in the futures business, and it has been my good fortune that many of them have been willing to work with me. I have, as a result, accumulated a long string of debts to people and would like to take this opportunity to acknowledge them.

First, I would like to express my thanks to Rick Kilcollin, who was a colleague of mine at the Federal Reserve Board in Washington and who, when he became Chief Economist at the Chicago Mercantile Exchange, freed me from a life of bureaucratic strife and brought me to Chicago in 1983. Rick worked with Fred Arditti on the design of the Eurodollar futures contract, and it was through my association with the Exchange membership and work on various Exchange committees that I began to get an appreciation of what this market was all about.

Once in Chicago, I jumped ship in 1986 to work for Morton Lane at Discount Corporation of New York Futures, and it is to Morton that I may well owe the greatest debt. Morton is insatiably curious about the way the world works and believes passionately that research and education provide the most solid foundations for building customer relationships. He also assembled one of the finest futures brokerage teams ever in the history of the business, and he expected all of his senior sales people to be able to think and teach. As a result of his commitment to research and his genius in recruiting, we were able to write and publish the original Eurodollar Futures and Options with Probus in 1991. My coauthors on that volume were Terry Belton, Morton Lane, Geoff Luce, and Rick McVey, each of whom brought a host of insights to our understanding of Eurodollar futures and options.

All that remains of the original volume appears here in chapter 1, which recounts the history of the Eurodollar cash and derivatives markets. But the influence of my original coauthors pervades everything. Terry taught me how to solve problems. Morton lived and breathed the markets as they developed. Geoff was the original designer of what we called the “Short End” money market report (which has morphed into the “Daily Zero to Ten” report that you will find later in this book). Rick taught me the practical difference between one-sided arbitrage (shopping for the best price) and two-sided arbitrage (using the bank’s balance sheet) and which was more important for keeping cash and futures rates in line with one another.

Soon after the publication of Eurodollar Futures and Options, Discount Corporation of New York Futures was sold to Dean Witter, where we became Dean Witter Institutional Futures. It was here that I was able to embark on a string of research projects that produced several of the chapters that make up this book. The really serious work was done at Dean Witter, largely because we were able to hire Bill Hoskins out of the Ph.D. program at the University of Chicago. Bill is one of those living, breathing whizzes who can combine theoretical insight and understanding with views of the world that traders understand.

Perhaps the high point of my career in Eurodollar futures was my work with Bill Hoskins on the value of the convexity bias in (or, as Bill would argue, not in) Eurodollar futures. A lot of people claimed to know something about convexity, and Terry Belton and I had even written a piece called “The Financing Bias in Eurodollar Futures” that covered the same ground in 1989. Even so, it was Bill’s particular insight that allowed us to present the problem the way we have in “The Convexity Bias in Eurodollar Futures” (see chapter 7). He combined his theoretical understanding of convexity with the way a trader would think about the problem, and it was this combination that made the research so accessible to the market. Bill also provided the key thinking behind “Measuring and Trading Term TED Spreads” in chapter 11 and “Hedging Extension and Compression Risk in Callable Agency Notes” in chapter 14. I still call him whenever I need help with whatever thorny problem I am wrestling with at the time.

I have learned from and been helped by several other colleagues in research. These include: Niels Johnson, who personifies positive gamma and whose programs still run; Lianyan Liu, who is a blindingly fast thinker and problem solver; Scott Lyden, who brought great insight to our understanding of Eurodollar options; George Panos, who, more than anyone I have known, loves to tackle pricing and hedging questions and has been invaluable in keeping our research grounded in the problems that vex our clients; Fred Sturm, who has a marvelous turn of mind and a visual way with data that is a wonder to behold; and Eric Zhang, who is another blindingly fast thinker and problem solver. I have learned, too, from my colleagues in sales as well. Both Mike Bagatti and Kevin Ferry found themselves pulled into research projects on Eurodollar options and the year-end turn, and I am in debt to them both.

I would like to thank several others for the help they have provided over the years. Jeff Johnson (Carr Futures) has been tireless and faithful in working with data, charts, publication issues, and general all-around work. Steve Youngren (Chicago Mercantile Exchange) was a colleague of mine in research when I arrived there in 1983. He was then and is now part of the corporate memory of the Exchange and is still just as generous with his time and energies as he was then. Celeste Pretzel (Carr Futures) and Sandy Gartler (Carr Futures) helped us with some thorny desktop publishing questions. And Sean Doyle and Sandy Sloane (both of Bank of America) have always been willing to answer questions about the real workings of the swap market.

I have a special affection for the Chicago Mercantile Exchange, and I am happy to say that they seem to have an affectionate regard for me as well. In June 2002 I spoke with Peter Barker, Vice President of Interest Rate Marketing at the CME, about this project and asked him if they could support it. His immediate answer was yes, and at his urging, the CME’s support was both generous and immediate. It is my good fortune to know such people and that my friends at the Merc think enough of this work that they were willing to publish the book jointly with McGraw-Hill.

I am grateful, too, for my position at Carr Futures, where I have been director of research for the past six years. Never in my wildest dreams could I have imagined a working life like the one I have now; it has given me the freedom and flexibility to undertake projects like this book. I have enjoyed the complete support of my colleagues, both in research and in sales, and it is only through their support that I have ever been able to get anything done at all.

I would like to thank Susan Kirshner. Susan’s contributions are everywhere. She joined me at Discount Futures in 1986 and was a colleague of mine in research for more than ten years. She helped with the original research notes. She wrote code. She helped teach our classes. She is a co-author of two of the papers that appear in this volume. She prepared the two chapters on contract specifications and the glossary. And it is only because of her extraordinary ability and commitment to this project that The Eurodollar Futures and Options Handbook has seen the light of day. Our objective in this book was to create a volume that would combine basic tools with research applications and that would allow us to include our collected research on Eurodollar futures in a single volume. And while the idea was a simple one, its execution was not. Through sheer force of intellect, will, and hard work, Susan has pulled together the separate pieces and imposed a beautiful sense of cohesion and flow on the whole thing. One could not ask for more.

And last, I would like to express my profound appreciation for the inspiration, drive, and devotion of Leo Melamed to building the Chicago Mercantile Exchange into the force it has become in the world of finance. He is an extraordinary man to work with and for, and I am quite sure that none of what we now take for granted in financial futures trading would have been possible without him. He may have had a lot of help along the way, but it was his brilliance, focus, and passion for the cause that brought us to where we are today. Thank you, Leo. I am in your debt.

Now then, I hope that you (the reader) enjoy the fruits of our labors.

Galen Burghardt