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Eurodollar futures & Interest rate risk

Eurodollar futures & Interest rate risk. 東海大學 國際貿易學系 徐啟升. Short-Term Interest Rate Futures. EURODOLLAR Futures (CME) 屬短期利率期貨之一項 Underlying Instrument is the 3-month Eurodollar Time Deposit with a principal value of $1,000,000 and the interest rate of 3-moth LIBOR .

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Eurodollar futures & Interest rate risk

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  1. Eurodollar futures & Interest rate risk 東海大學 國際貿易學系 徐啟升

  2. Short-Term Interest Rate Futures • EURODOLLAR Futures (CME) 屬短期利率期貨之一項 • Underlying Instrument is the 3-monthEurodollarTime Deposit with a principal value of $1,000,000 and the interest rate of 3-moth LIBOR. • 13-Week T-Bill Futures (CME) • The underlying unit is the 3-month (13-week) U.S. Treasury Bills having a face value at maturity of $1,000,000 • 1-Month LIBOR Futures (CME) • CME LIBOR futures represent one-month LIBOR rates on a $3 million deposit.

  3. Eurodollar futures • Underlying Instrument is the 3-monthEurodollarTime Deposit with a principal value of $1,000,000 and the interest rate of 3-moth LIBOR. • Last Trading Day: It is settledin cash on the second London bank business day just prior to the thirdWednesday of the contract month. • The final settlement price is determined by the 3-monthLIBOR (London Interbank Offered Rate ) on the last trading day.  WSJ video: All about Libor

  4. Eurodollar futures 價格：IMMIndex • Prices of Eurodollar futures arequoted on the“IMM Index” convention where a contract’s price is equal to 100 minus the market’s opinion of where the interest rate will be on the contract’s expiration date.(100 less the yield ) • For example, if the price for March 2016 was 97.55, it would mean that the market is expecting that the 90-day LIBOR will be 2.45 %at the close of March 2016 . • The “IMM” or International Monetary Market was established as a Division of Chicago Mercantile Exchange many years ago … the distinction is seldom made today as CME operates as a unified entity … but references to IMM persist today.

  5. Eurodollar Futures quotes: 2011/11/16

  6. 臺股期貨在賭什麼？到期時台股股價指數的大小臺股期貨在賭什麼？到期時台股股價指數的大小 • 臺股期貨之各契約最後交易日為交割月份第三個星期三，故臺股期貨11月契約於2011/11/16到期結算。 • 假若你於2011/11/14以開盤價7,493點買入臺股期貨11月契約，你在賭什麼？ • 你在賭11/16到期時，台股期貨的交易標的(發行量加權股價指數)會高於7,493。 • 到了11/15，最後成交價為7,501，你未售出(平倉)，你在賭什麼？ • 你在賭11/16到期時，交易標的(台股股價指數)會高於7,501。 • 到了11/16，開盤後一路下跌，台股股價指數7,387收盤，你根本來不及平倉，只得以最後結算價7,398點結算。你虧了。 • 最後結算價係以最後結算日臺灣證券交易所當日交易時間收盤前三十分鐘內所提供標的指數之簡單算術平均價訂之。

  7. 再問一次 臺股期貨在賭什麼？ • 在賭：到期時「契約交易標的：台股股價指數」的大小。 • 期貨是衍生性商品，故台股期貨價格是依附於台股股價指數。 • 為何你會於11/14買入台股期貨？因你預期11/16(到期)之台股股價指數會漲(相對於11/14)，進而使得台股期貨價格上漲。 • 為何你於11/15有賺了還不賣？同樣是因你預期11/16(到期)之台股股價指數會漲(相對於11/15)，進而使得台股期貨價格上漲。 • 很不幸，11/16到期了，你的預期錯誤，你輸了。

  8. 同樣的，Eurodollar期貨在賭什麼？ • 在賭：到期時「契約交易標的：3M LIBOR」的高低。 • Eurodollar futures prices reflect market expectations for 3M LIBORfor specific dates in the future. • 2011/11/16，12月份Eurodollar期貨契約價格收99.40，代表市場預期12/19到期時，3MLIBOR會訂在0.6%。 • 到了11/17，該契約收在99.35，代表市場預期12/19到期時，3MLIBOR會訂在0.65%。 • 你要不要認賠殺出平倉？還是繼續持有？這是你每天要做的決策。 • Today more than 97% of Eurodollar futures trade electronically on the CME Globex electronic trading platform.

  9. Tick • The standardized price move, or "tick" for interest rate futures is one basis pointand equals $25(=1,000,000*0.0001*90/360). • Gains or losses are calculated by determining the number of ticks moved, multiplied by the value of the tick (= 25). • The5tick decline (e.g.,96.3596.30 ) in the price of the Eurodollar contracts means the LIBOR increased by 0.05%. • If you acquired a short position at the close of the prior day, you would gain $125 [ -(-5 ticks * 25/tick)] per contract.

  10. Interest rates and prices • If interest rates rise, the price of the contract falls. • To profit from declining interest rates, you would buy the futures contract (go long). • To profit from a rise in interest rates, you would sell the contract (go short).

  11. Hedge a Forward Borrowing Rate (1/2) (Borrowing floating rate  怕LIBOR↑Price↓  SellED futures) • On 2011/06/20, a firm projects that it will require a $10 million bank loan on Sep. 19 for 3 months. (代表借款期間為9/19~12/18) • The loan rate will be LIBOR3+1%. (必須等至9/19才知3-month LIBOR是多少?). • Today, you sellten September Eurodollar futures, trading at 94.18, to lock in the forward borrowing rate. (今天賣10口9月契約避險，價格94.18) • As a result, you ensure a borrowing rate of 6.82% for the 3-month period beginning Sep. 19.(詳見下頁)

  12. Hedge a Forward Borrowing Rate(2/2) • 如果你以最後結算價93平倉，代表最後交易日之3MLIBOR為7%(此即為9/19起之3個月期市場利率)。 • 你的銀行貸款利息：$10,000,000*(7%+1%)*(90/360)=$200,000 • 你的Eurodollar期貨獲利:(94.18 - 93) 118(ticks)*$25*10 = $29,500 你鎖定貸款利率在[($200,000-29,500)/10,000,000]*4=6.82% APR • 更直接的想法，一旦你賣出ED期貨94.18，即鎖定借款利率在： • (100-94.18)  5.82%+1%(3MLIBOR+1%)。 • ] = 1%

  13. Hedging Borrowing Costs with Eurodollar Futures (1) • Bank Loan– Borrow $1 Million at 3M LIBOR + 1% on Mar. 16, 2015 for 6 months. Repay on Sep. 14, 2015 (182 days). • 你要借款6個月，但設定之利率為3MLIBOR+1%，故利率必須設定二次。 • 第一次在March 16, 2015，依當日實際之3MLIBOR來決定3/16~6/15期間之借款利率(3MLIBOR+1%) • 第二次在June 15, 2015 ，依當日實際之3MLIBOR來決定6/15~9/14期間之借款利率(3MLIBOR+1%) • 資料來源：Hedging Borrowing Costs with Eurodollar Futures, James Boudreault, CME Group.

  14. Hedging Borrowing Costs with Eurodollar Futures (2) • 前述貸款利率是每3個月設定一次(由採3MLIBOR得知)，剛好Eurodollar(ED)期貨也採3MLIBOR做為交易標的，因此可利用ED期貨避利率風險。 • Sell (今天2011/11/16價格) • OneEurodollar March 2015 futures at 96.6. (forward 3M LIBOR = 3.4%) • 以最後交易日(2015/3/16,Monday)之3M LIBOR計算最後結算價，故該日之3MLIBOR包含期間為2015/3/16+3months. • OneEurodollar June 2015 futures at 96.4. (forward 3M LIBOR = 3.6%) • 以最後交易日(2015/6/15,Monday)之3M LIBOR計算最後結算價，故該日之3MLIBOR包含期間為2015/6/15 + 3 months.

  15. Hedging Borrowing Costs with Eurodollar Futures (3) • 假若，時光飛逝，已到了2015/3/16，EDMarch 2015之最後結算價為95.60. (Recall：你於2011/11/16賣 96.60). • 96.60-95.60  Profit = 100 ticks*$25/tick = 2,500 • 又假若，時光飛逝，已到了2015/6/15，EDJune 2015之最後結算價為95.40. (Recall：你於2011/11/16賣 96.40). • 96.40-95.40  Profit = 100 ticks*$25/tick = 2,500 • Total profit of ED futures: 2,500 + 2,500 = 5,000

  16. Hedging Borrowing Costs with Eurodollar Futures (4) • EDMarch 2015與ED June 2015之最後結算價分別為95.60及95.40，代表3/16當日實際3MLIBOR為4.4%，6/15當日實際3MLIBOR為4.6%。 • 且設定之借款利率為3MLIBOR+1%，故6個月貸款利息為： • $1,000,000*(4.4%+1%)*91/360 + $1,000,000*(4.6%+1%)*91/360 = $27,805.56 (亦可以90/360計算) • EDfutures獲利$5,000，故淨利息為：$27,805.56 - $5,000 = $22,805.56 • 是故，鎖定6個月期借款利率為： • $22,805.56/$1,000,000= 2.28%別忘了要用年利率表示， y = 4.56%, APR

  17. Hedging Borrowing Costs with Eurodollar Futures (5) • 換另一方式來看，EDMarch 2015與ED June 2015之最後結算價分別為95.60(當初賣96.60)與95.40(當初賣96.40)。 • 故銀行借款之利率為: (4.4%+1%)/4+ (4.6%+1%)/4 = 2.75% (半年)5.5%APR • 且EDfutures獲利：(96.695.6)1%APR (3個月)+(96.495.4) 1% APR (3個月)= 1% APR (6個月) • 是故，鎖定借款利率為：5.5% - 1% = 4.5%

  18. Hedging Borrowing Costs with Eurodollar Futures (6) • 最直接的想法，一旦你賣出ED期貨96.6與96.4，即鎖定借款利率在： • (3.4%*+3.6%*)*2+1% = 4.5%APR。 • 3.4%是年利率(APR)，改為3個月期，故乘上1/4 (90/360)。 • 3.6%是年利率(APR)，改為3個月期。 • (括弧內)代表6 個月(3+3)期利率。 • 乘上2，代表此6個月期以年利率(APR)表示。 • 約定之借款利率為3MLIBOR+1%，故加上1%。

  19. 終於，你辛苦地看完、想完、讀完。 終於，我辛苦地寫完、打完、改完。

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