interest_index_07

# interest_index_07 - Interest Rate Futures Introduction...

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Interest Rate Futures: Introduction

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Learning outcomes T-Bill futures: deliverable, invoice price,  futures price quote Eurodollar futures given LIBOR
T_Bill Futures The deliverable asset to the T-Bill futures  contract is  a \$1,000,000 face value T-Bill  that has 90 days  to maturity. As of 2002,  the T-Bill contract is cash settled.

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T_Bill Futures The invoice price of a T-Bill is calculated as: dtm = days to maturity dy   = discount yield rate. - = 360 1 000 , 000 , 1 dtm dy P
T-Bill Futures Quoted futures price: Futures price (IMM Index) = 100 – DY (%) Example: Annual Discount yield 8.5% Futures Price = 100 – 8.50 = 91.50 The IMM Treasury Bill index (futures  price) is the difference between the  annualized discount yield and 100.

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T-Bill Futures T-Bill futures exist in quarterly expirations: March, June, September, December Example: The March T-Bill futures contract calls for the  delivery of a 3 month T-Bill of 1,000,000 face  value. As of 2002 the T-Bill futures contract is cash  settled.
T-Bill Futures What is a basis point in 90-day T-Bills or T-Bill  futures? A basis point is simply one hundredth of one  percent or a 0.0001 change in the discount  yield. What is the notional value that corresponds to  one basis point? bpv =1,000,000 0.0001 90 360 = 25

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Price at Delivery or Invoice Amount Cash Bill invoice price =   Example: dy=0.085 , dtm = 90 Price = 1,000,000(1-0.085*90/360) = \$978,750. P =1,000,000 1- dy dtm 360
Invoice price based on T-Bill Futures Quote T-Bill Futures quote = 91.50 Since f = 100-DY(%), then  DY = 100-91.50 = 8.50 and dy  = DY/100 Invoice price =  P =1,000,000 1- dy dtm 360

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Invoice price based on T-Bill Futures Quote T-Bill spot market price per \$100 of cash  value is equal to: Example:          100 – 8.5(90/360) = 97.875 Spot . price =100 - DY dtm 360
How much do we make or lose? Buy one T-Bill contract at 95.00 and sell

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interest_index_07 - Interest Rate Futures Introduction...

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