Aug 28

Eurodollar futures – 6 min screencast

by David Harper, CFA, FRM, CIPM

FRM |

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Here is an introduction to the Eurodollar futures contract using current quotes to illustrate:

  • Assume we take a long position in a December 2008 Eurodollar futures contract. The quote is 97.005. That means we are “locking in” an annualized LIBOR rate of 2.995% (100 – 97.005). The quote of 97.005 corresponds to a contract price of $992,513 (the contract is on a par of $1 million)
  • If the LIBOR rate declines to, say, 2.0% in December, the quote goes up to 98 (100 – 2) and contract price goes up to $995,000
  • As a long position, we gained (by design) $25 per 1 basis point decline in the LIBOR.

The contract price is given by:

eurodollar_future_price

And Bruno helpfully summarized several key points in the forum.

Screencast:

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