Interest Rate Futures: Elements of a Successful Financial Innovation

Bluford H. Putnam

Chapter 11 in The World Scientific Handbook of Futures Markets, 2015, pp 349-379 from World Scientific Publishing Co. Pte. Ltd.

Abstract: U.S. interest rate futures, including Eurodollar time deposit and U.S. Treasury futures contracts, comprise one of the most successful financial innovations ever created. This chapter examines why and how U.S. interest rate futures became so popular. Sections cover the critical characteristics of exchange-traded futures that foster investor confidence to use the products, the historical context and process of innovation that led to the creation of U.S. interest rate futures, how the standardization of interest rate futures allowed interaction with other credit markets, and the importance of interest rate expectations and an appreciation of interest rate uncertainty. We close with some brief remarks relevant to the role interest rate risk management plays in the growth of a dynamic economy.

Keywords: Futures Markets; Pricing; Risk Management; Futures Trading; Stock Indexes; Interest Rates; Futures Prices; Portfolio Theory; Hedge Funds; Foreign Exchange (search for similar items in EconPapers)
Date: 2015
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