Synthetic Eurocurrency Interest Rate Futures Contracts: Theory and Evidence

Annie Koh and Richard M. Levich

No 3055, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, we develop a theoretical (arbitrage) pricing model for a Eurocurrency interest rate futures contract and measure its hedging effectiveness. This synthetic Eurocurrency interest rate futures contract is obtained by combining exisiting Eurodollar interest rate futures contracts with near term and far term currency futures contracts based on the covered interest rate parity relationship. In theory, the cash flows of the synthetic contract perfectly replicate the cash flows of a Eurocurrency interest rate futures contract. Our empirical results show that the synthetic contracts are relatively efficient in hedging non-dollar borrowing rates. These results have implications for the practice of hedging non-dollar interest rate risk and for the development of actual Eurocurrency interest rate futures markets.

Date: 1989-08
Note: ITI IFM
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as Japan, Europe, and Internaitonal Financial Markets: Analytical and Empirical Perspectives, 1994, Ed. Ryuzo Sato, Richard M. Levich, Rama Ramachand Cambridge University Press: New York, pp.147-175.

Downloads: (external link)
http://www.nber.org/papers/w3055.pdf (application/pdf)

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:nbr:nberwo:3055

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w3055

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().