Futures Prices on Yields, Forward Prices, and Implied Forward Prices from Term Structure

Suresh Sundaresan

Journal of Financial and Quantitative Analysis, 1991, vol. 26, issue 3, 409-424

Abstract: When futures contracts are settled with respect to underlying asset prices, received theory suggests that the differences between futures prices and implied forward prices (from the term structure) are strictly due to marking to market, ceteris paribus. Empirical evidence appears to indicate that such differences are small for contracts with short maturities. What happens when the futures contract settles to yields implied by future prices of underlying assets? The Eurodollar futures contract, which is the most actively traded futures contract in the United States, settles to yield as opposed to prices. This unique settlement feature is shown to imply that the implied forward prices from the LIBOR term structure should differ from the futures prices even in the absence of marking to market. Differences due to marking to market effect are small: they are shown to vary between 2 to 45 basis points (less than one-half percent of futures prices). On the other hand, differences between implied forward prices and futures prices are shown to be relatively large.

Date: 1991
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:26:y:1991:i:03:p:409-424_00

Access Statistics for this article

More articles in Journal of Financial and Quantitative Analysis from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().