Re: Euro Dollar & T-bill Futures

[Ratan Gupta, FRM]

T bills future have 90 day T bill as underlying with $1 million as the
face value.
If the T bill is trading at $99 , then the discount is $1 or 1%
(1/100) , which is taken on the face value and is annualised.
However we need to convert this into 90 day rate, which is 90/360 *
0.01 = 0.0025
The price of the future will be (1-0.0025) * $ 1 million = 997,500

Now let the price of T bill increase by 1 cent => new price is $99.01
=> annual discount is 0.99%
=> 90 day discount is 90/360*0.0099 = 0.002475
The price of the future will be (1-0.002475) * $ 1 million = 997,525

So a one point change in the T bill result in (997525-997500) = $25
change in the price of T bill future.

Technically all the calculation for Euro dollar future is the same,
only difference is that the underlying is not T bill but on the 90 day
LIBOR rate, which is not influenced by the US Fed decision and is more
of a global rate. Euro dollar future price also changes by $25 ($1
million contract size) for a 1 basis point (0.01%) change in the
interest rate.
There is no way to distinguish between the two futures just looking at
price, you will be given in the exam which is the underlyer (a T bill
or LIBOR), but the change in teh T bill will be on the bond
value( e.g. by 1 cent )where as the change in Euro Dollar would be by
the percentage change in LIBOT (e.g 0.01%)

Hope it is clear.

Thanks
Ratan

On Feb 8, 12:56 pm, Geetha Vramani <vramani.gee...@gmail.com> wrote:
> Hi Ratan,
>
> Please explain Eurodollar future contracts (example in schweser pg
> 185) . And how to differentiate b/w euro-dollar & T-bill future
> contracts.
>
> I find these 2 a bit confusing when put together.
>
> Thanks,
> Geetha