- Cover Page
- The Eurodollar Futures and Options Handbook
- Copyright Page
- Contents
- List of Exhibits
- List of Examples
- List of Equations
- List of Contributors
- Foreword
- Part One The Emergence of the Eurodollar Market
- Chapter 1 The Emergence of the Eurodollar Market
- Part Two Building Blocks: Eurodollar Futures
- Chapter 2 The Eurodollar Time Deposit
- Chapter 3 The Eurodollar Futures Contract
- Chapter 4 Forward and Futures Interest Rates
- Deriving a Forward Rate from Two Term Deposit Rates
- Locking an Effective Forward Lending Rate Using Eurodollar Futures
- Important Differences between Forward and Futures Markets
- Determining the Fair Value of a Eurodollar Futures Contract
- Richness and Cheapness
- Forward Rates Are Break-Even Rates
- Yield Curve Trades
- Finding the Forward Term Deposit Curve Implied by Today’s Futures Rates
- Chapter 5 Hedging with Eurodollar Futures
- Chapter 6 Pricing and Hedging a Swap with Eurodollar Futures
- Fixed/Floating Interest Rate Swaps
- Approaches to Pricing and Hedging Interest Rate Swaps
- Pricing a Swap Using the Cash Flow Method
- Hedging a Swap Using the Cash Flow Method
- Pricing a Swap Using the Hypothetical Securities Method
- Hedging a Swap Using the Hypothetical Securities Method
- Pricing and Hedging Off-the-Market Swaps
- Convexity Differences between Forward and Futures Rates
- Comparing Three Yield Curves: Forward, Zero Coupon, and Par Coupon
- Part Three Eurodollar Futures Applications
- Convexity Bias (Chapters 7 through 10)
- Term TED Spreads (Chapters 11 and 12)
- Hedging and Trading with Eurodollar Stacks, Packs, and Bundles (Chapter 13)
- Hedging Extension Risk in Callable Agency Notes (Chapter 14)
- Opportunities in the S&P Calendar Roll (Chapter 15)
- Trading the Turn (Chapters 16 and 17)
- Chapter 7 The Convexity Bias in Eurodollar Futures
- Galen Burghardt and William Hoskins Research note originally released September 16, 1994
- Synopsis
- Introduction
- Interest Rate Swaps and Eurodollar Futures
- How Much Is the Convexity Bias Worth?
- Reconciling the Difference between a Swap and a Eurodollar Futures Contract
- A Workable Rule of Thumb
- The Importance of the Bias for Pricing Term Swaps
- The Market’s Experience with the Convexity Bias
- Now What?
- APPENDIX A Deriving the Rule of Thumb
- APPENDIX B Calculating Eurodollar Strip Rates and Implied Swap Rates
- Chapter 8 Convexity Bias Report Card
- Chapter 9 New Convexity Bias Series
- Chapter 10 Convexity Bias: An Update
- Chapter 11 Measuring and Trading Term TED Spreads
- Galen Burghardt, William Hoskins, and Susan Kirshner Research note originally released July 26, 1995
- Synopsis
- TED Spreads
- Two Kinds of Term TED Spreads
- How Do These Rates Compare?
- How Directional Is the Spread?
- Trading the Spreads
- What to Do with the Stub
- Forward Term TED Spreads
- Term TED Spreads and Swap Spreads
- APPENDIX Complete Operating Instructions for Calculating Term TED Spreads and Hedge Ratios
- Chapter 12 TED Spreads: An Update
- Chapter 13 Hedging and Trading with Eurodollar Stacks, Packs, and Bundles
- Galen Burghardt, George Panos, and Fred Sturm Research note originally released December 15, 1999
- Synopsis
- Hedging and Trading with Eurodollar Stacks, Packs, and Bundles
- Basics: Dates, Names, Packs, Bundles, and Quotes
- Quote Practices 1: Ticks
- Quote Practices 2: Use Price Level for Individual Contracts
- Quote Practices 3: Use Price Changes for Packs and Bundles
- Unpacking Packs, Unbundling Bundles
- Hedging with Stacks, Packs, and Bundles
- Trading Curve TEDs
- Chapter 14 Hedging Extension and Compression Risk in Callable Agency Notes
- Galen Burghardt and William Hoskins Research note originally released March 24, 1995
- Synopsis
- Introduction
- Structuring a Hedge
- Example of Hedging a 10-Year, 8.5 Percent Coupon Note, Callable in 5 Years
- The Costs and Risks of Delta Hedging
- The Yield Spread between Agencies and Treasurys
- What If There Is Little or No Call Protection?
- Sometimes Strips of Eurodollar Futures Provide Better Hedges
- Chapter 15 Opportunities in the S&P 500 Calendar Roll
- Chapter 16 Trading the Turn: 1993
- Chapter 17 The Turn: An Update
- Convexity Bias (Chapters 7 through 10)
- Part Four Building Blocks: Eurodollar Options
- Chapter 18 The Eurodollar Option Contract
- Chapter 19 Price, Volatility, and Risk Parameter Conventions
- Chapter 20 Caps, Floors, and Eurodollar Options
- Chapter 21 Structure and Patterns of Eurodollar Rate Volatility
- Chapter 22 Practical Considerations
- Part Five Eurodollar Option Applications
- Trading with Serial and Mid-curve Eurodollar Options (Chapters 23 and 24)
- What Happens to Eurodollar Volatility when Rates Fall? (Chapters 25 and 26)
- Hedging Convexity Bias (Chapter 27)
- Chapter 23 Trading with Serial and Mid-curve Eurodollar Options
- Galen Burghardt and Scott Lyden Research note originally released June 22, 1998
- Synopsis
- The Full Constellation of Eurodollar Options
- The Beauty of This Design
- The Eurodollar Strategy Triangle
- Different Volatility Horizons
- Mid-curve Options versus OTC Treasury Options
- Some Things to Keep in Mind
- LIFFE’s Options
- Chapter 24 Serial and Mid-curve Options: An Update
- Chapter 25 What Happens to Eurodollar Volatility When Rates Fall?
- Chapter 26 Eurodollar Volatility: An Update
- Chapter 27 Hedging Convexity Bias
- Glossary
- Index
- About the Author
- Footnotes
LIST OF EQUATIONS
PART TWO
BUILDING BLOCKS: EURODOLLAR FUTURES
Chapter 2
The Eurodollar Time Deposit
Equation 2.1 Interest on a Eurodollar Term Deposit
Chapter 4
Forward and Futures Interest Rates
Equation 4.1 Combine a Short Rate with a Forward Rate to Get a Long Rate
Equation 4.2 Calculate a Forward Rate from Long and Short Deposit Rates
Chapter 5
Hedging with Eurodollar Futures
Equation 5.2 Hedge Ratio for Forward Values
Equation 5.3 Hedge Ratio for Present Values
Equation 5.4 Calculate Terminal Wealth Using Futures Rates
Equation 5.5 Calculate the Zero-Coupon Bond Price (Using Terminal Wealth)
Equation 5.6 Calculate the Zero-Coupon Bond Price (Using Spot and Futures Rates)
Equation 5.7 Calculate a Hedge Ratio Using Calculus
Chapter 6
Pricing and Hedging a Swap with Eurodollar Futures
Equation 6.1 Find the 1-Year Swap Net Present Value Using the Cash Flow Method
Equation 6.2 Find the Change in the 1-Year Swap NPV Given a Change in Futures
Equation 6.3 Find the Eurodollar Futures Hedge Ratios for the Swap
PART FOUR
BUILDING BLOCKS: EURODOLLAR OPTIONS
Chapter 19
Price, Volatility, and Risk Parameter Conventions
Equation 19.1 One-Day Relative Rate Change
Equation 19.2 Annualized Volatility
Equation 19.3 One-Day Rate Change
Equation 19.4 Calculate Period Standard Deviations from Annualized Volatility
Equation 19.5 Basis Point Volatility over Time Period t
Chapter 21
Structure and Patterns of Eurodollar Rate Volatility
Equation 21.1 Calculate Period Standard Deviations from Annualized Volatility
Equation 21.2 The Relationship between Gamma, Theta, and Realized Volatility
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