Year-end seasonality in one-month LIBOR derivatives

Christopher Neely and Drew B. Winters

No 2003-040, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We examine the markets for one-month LIBOR futures contracts and options on those futures for a year-end price effect consistent with the previously identified year-end rate increase in one-month LIBOR. The cash market rate increase appears in forward rates and derivative prices, which allows the derivatives to properly hedge year-end interest rate risk. However, while the year-end effect appears in the derivative contract, these derivative contracts provide biased forecasts of both future interest rates and their volatility. The bias appears to be different at year's end for the LIBOR futures contract, but not for the options contract. The information in the derivatives almost always subsumes simple benchmark forecasts. ; Earlier title: Seasonality in one-month LIBOR derivatives

Keywords: Econometrics; Monetary policy; Finance (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-mac
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Citations: View citations in EconPapers (2)

Published in Journal of Derivatives, Spring 2006, 13(3), pp. 47-65

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DOI: 10.20955/wp.2003.040

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