固定收益证券InterestRate Futures Contracts.ppt

copyright 2010pearsoneducation inc publishingasprenticehall 27 1 chapter27interest ratefuturescontracts copyright 2010pearsoneducation inc publishingasprenticehall 27 2 learningobjectives afterreadingthischapter youwillunderstandwhatafuturescontractisthedifferencesbetweenafuturesandaforwardcontractthebasicfeaturesofvariousinterest ratefuturescontractsthecheapest to deliverissueforatreasurybondfuturescontractandhowitisdeterminedhowthetheoreticalpriceofafuturescontractisdeterminedhowthetheoreticalpriceofatreasurybondfuturescontractisaffectedbythedeliveryoptionshowfuturescontractscanbeusedinbondportfoliomanagement speculation changingduration yieldenhancement andhedginghowtocalculatethehedgeratioandthenumberofcontractstoshortwhenhedgingwithtreasurybondfuturescontracts copyright 2010pearsoneducation inc publishingasprenticehall 27 3 mechanicsoffuturestrading afuturescontractisafirmlegalagreementbetweenabuyer seller andanestablishedexchangeoritsclearinghouseinwhichthebuyer seller agreestotake make deliveryofsomethingataspecifiedpriceattheendofadesignatedperiodoftime thepriceatwhichthepartiesagreetotransactinthefutureiscalledthefuturesprice thedesignateddateatwhichthepartiesmusttransactiscalledthesettlementdate thecontractwiththenearestsettlementdateiscalledthenearbyfuturescontract thenextfuturescontractistheonethatsettlesjustafterthenearbycontract thecontractfurthestawayintimefromsettlementiscalledthemostdistantfuturescontract copyright 2010pearsoneducation inc publishingasprenticehall 27 4 mechanicsoffuturestrading continued openingpositionwhenaninvestortakesapositioninthemarketbybuyingafuturescontract theinvestorissaidtobeinalongpositionortobelongfutures if instead theinvestor sopeningpositionisthesaleofafuturescontract theinvestorissaidtobeinashortpositionorshortfutures liquidatingapositionapartytoafuturescontracthastwochoicesonliquidationoftheposition first thepositioncanbeliquidatedpriortothesettlementdate thealternativeistowaituntilthesettlementdate forsomefuturescontracts settlementismadeincashonly suchcontractsarereferredtoascash settlementcontracts copyright 2010pearsoneducation inc publishingasprenticehall 27 5 mechanicsoffuturestrading continued roleoftheclearinghouseassociatedwitheveryfuturesexchangeisaclearinghouse afuturescontractisanagreementbetweenapartyandaclearinghouseassociatedwithanexchange theclearinghousemakesitsimpleforpartiestoafuturescontracttounwindtheirpositionspriortothesettlementdate whenaninvestortakesapositioninthefuturesmarket theclearinghousetakestheoppositepositionandagreestosatisfythetermssetforthinthecontract becausetheclearinghouseexists theinvestorneednotworryaboutthefinancialstrengthandintegrityofthepartytakingtheoppositesideofthecontract besidesitsguaranteefunction theclearinghousemakesitsimpleforpartiestoafuturescontracttounwindtheirpositionspriortothesettlementdate copyright 2010pearsoneducation inc publishingasprenticehall 27 6 mechanicsoffuturestrading continued marginrequirementswhenapositionisfirsttakeninafuturescontract theinvestormustdepositaminimumdollaramountpercontractasspecifiedbytheexchange thisamount calledtheinitialmargin isrequiredasdepositforthecontract attheendofeachtradingday theexchangedeterminesthesettlementpriceforthefuturescontract thispriceisusedtomarktomarkettheinvestor sposition sothatanygainorlossfromthepositionisreflectedintheinvestor sequityaccount copyright 2010pearsoneducation inc publishingasprenticehall 27 7 mechanicsoffuturestrading continued marginrequirementsthemaintenancemarginistheminimumlevel specifiedbytheexchange bywhichaninvestor sequitypositionmayfallasaresultofanunfavorablepricemovementbeforetheinvestorisrequiredtodepositadditionalmargin theadditionalmargindeposited calledthevariationmargin istheamountnecessarytobringtheequityintheaccountbacktoitsinitialmarginlevel theconceptofmargindiffersforsecuritiesandfutures whensecuritiesareacquiredonmargin thedifferencebetweenthepriceofthesecurityandtheinitialmarginisborrowedfromthebrokerwiththesecuritypurchasedservingascollateralfortheloan forfuturescontracts theinitialmargin ineffect servesas goodfaith money anindicationthattheinvestorwillsatisfytheobligationofthecontract copyright 2010pearsoneducation inc publishingasprenticehall 27 8 mechanicsoffuturestrading continued commissionscommissionsonfuturescontractsarefullynegotiable theyareusuallyquotedonthebasisofaroundturn apricethatincludestheopeningandclosingoutofthefuturescontract inmostcases thecommissionisthesameregardlessofthematuritydateortypeoftheunderlyinginstrument commissionsforinstitutionalaccountsvaryenormously rangingfromalowofabout 11toahighofabout 30percontract copyright 2010pearsoneducation inc publishingasprenticehall 27 9 futuresversusforwardcontracts justlikeafuturescontract aforwardcontractisanagreementforthefuturedeliveryoftheunderlyingataspecifiedpriceattheendofadesignatedperiodoftime futurescontractsaretradedonorganizedexchangesandarestandardizedagreementsastothedeliverydate ormonth andqualityofthedeliverable aforwardcontractdiffersinthatithasnoclearinghouse usuallyhasnonstandardizedcontracts i e thetermsofeachcontractarenegotiatedindividuallybetweenbuyerandseller andtypicallyhasnonexistentorextremelythinsecondarymarkets becausethereisnoclearinghousethatguaranteestheperformanceofacounterpartyinaforwardcontract thepartiestoaforwardcontractareexposedtocounterpartyrisk copyright 2010pearsoneducation inc publishingasprenticehall 27 10 riskandreturncharacteristicsoffuturescontracts thebuyerofafuturescontractwillrealizeaprofitifthefuturespriceincreases thesellerofafuturescontractwillrealizeaprofitifthefuturespricedecreases ifthefuturespricedecreases thebuyerofafuturescontractrealizesalosswhilethesellerofafuturescontractrealizesaprofit whenapositionistakeninafuturescontract thepartyneednotputuptheentireamountoftheinvestment instead onlyinitialmarginmustbeputup althoughthedegreeofleverageavailableinthefuturesmarketvariesfromcontracttocontract theleverageattainableisconsiderablygreaterthaninthecashmarket futuresmarketscanbeusedtoreducepricerisk withouttheleveragepossibleinfuturestransactions thecostofreducingpriceriskusingfutureswouldbetoohighformanymarketparticipants copyright 2010pearsoneducation inc publishingasprenticehall 27 11 currentlytradedinterest ratefuturescontracts mostmajorfinancialmarketsoutsidetheunitedstateshavefuturescontractssimilartotheu s severalofthemoreimportantinterest ratefuturescontractsintheunitedstatesaredescribedinthefollowingsections forthefirstthree treasurybillsfuturescontract eurodollarfuturescontract andfederalfundsfuturescontract theunderlyinginterestrateisashort term moneymarket interestrate fortheothercontracts treasurybondfutures treasurynotesfutures andmunicipalnoteindexfutures theunderlyinginterestrateisalongerterminterestrate mostmajorfinancialmarketsoutsidetheunitedstateshavesimilarfuturescontractsinwhichtheunderlyingsecurityisafixed incomesecurityissuedbythecentralgovernment copyright 2010pearsoneducation inc publishingasprenticehall 27 12 currentlytradedinterest ratefuturescontracts continued eurodollarfutureseurodollarfuturescontractsaretradedonboththeinternationalmonetarymarketofthechicagomercantileexchangeandthelondoninternationalfinancialfuturesexchange theeurodollarcertificateofdeposit cd istheunderlyingforthiscontract aeurodollarcdisadollar denominatedcdissuedoutsideoftheunitedstates typicallybyaeuropeanbank three monthliboristheunderlyingfortheeurodollarfuturescontract thatis thepartiesareagreeingtobuyandsell three monthlibor copyright 2010pearsoneducation inc publishingasprenticehall 27 13 currentlytradedinterest ratefuturescontracts continued eurodollarfuturesaeurodollarfuturescontractisquotedonanindexpricebasis fromthefuturesindexprice theannualizedfuturesthree monthliborisdeterminedasfollows 100minustheindexprice forexample aeurodollarfuturesindexpriceof94 52meansthepartiestothiscontractagreetobuyorsellthethree monthliborfor5 48 sincetheunderlyingisaninterestthatobviouslycannotbedelivered thiscontractisacashsettlementcontract copyright 2010pearsoneducation inc publishingasprenticehall 27 14 currentlytradedinterest ratefuturescontracts continued eurodollarfuturesthefacevalueforaeurodollarfuturescontractis 1million aon tickchangeintheindexpriceforthiscontractis0 01 thatis anindexpricechangeof forexample 94 52to94 53is0 01oronetick anindexpricechangefrom94 52to94 53changesthethree monthliborfrom5 48 to5 47 intermsofbasispoints aone tickchangeintheindexpricemeansa1 basis point 0 0001 changeinthethree monthlibor thesimpleintereston 1millionfor90daysisequalto 1 000 000 libor 90 360 ifliborchangesby1basispoint 0 0001 then 1 000 000 0 0001 90 360 25hence aone tickchangeintheindexpriceor equivalently a1 basis pointchangeinthethree monthlibormeansa 25changeinthevalueofthecontract copyright 2010pearsoneducation inc publishingasprenticehall 27 15 currentlytradedinterest ratefuturescontracts continued eurodollarfuturestheminimumpricefluctuationfortheindexpriceisahalfatick or 12 50 inthenearesttradingmonthforthiscontract theminimumindexpricefluctuationisaquartertick or 6 25 thecontractsarelistedformarch june september anddecember referredtoasthe marchcycle 40monthsinthemarchquarterlycycle andthefournearestserialcontractmonths tounderstandthis seeexhibit27 1 whichshowsthecontractslistedonthecmeonjanuary2 2008 seetruncatedversionofexhibit27 1inoverhead27 16 alsoshownintheexhibit27 1isthefirstdayoftrade thelastdayoftrade thecashsettlementdate andthedatethecontractwillbedeleted copyright 2010pearsoneducation inc publishingasprenticehall 27 16 exhibit27 1listedcmeeurodollarfuturescontractsonjanuary2 2008 copyright 2010pearsoneducation inc publishingasprenticehall 27 17 currentlytradedinterest ratefuturescontracts continued eurodollarfuturestheeurodollarfuturescontractisacashsettlementcontract thatis thepartiessettleincashbasedonthree monthliboratthesettlementdate supposethatatradeoccursat94 52andonthesettlementdatethesettlementindexpriceis95 00 fromtheperspectiveofthebuyer theindexpriceincreased hence thesellermustpaythebuyer0 48 sinceonetickis 25and0 48is48ticks thebuyerreceivesfromtheseller48 25 1 200 analternativewayofthinkingaboutthisisthatthebuyercontractedtoreceiveathree monthinterestrateof 100 00 94 52 5 48 copyright 2010pearsoneducation inc publishingasprenticehall 27 18 currentlytradedinterest ratefuturescontracts continued eurodollarfuturesatthesettlementdate theindexpriceis95 00 thismeansathree monthliborof5 00 interestrateisavailableinthemarket thecompensationof 1 200ofthesellertothebuyerisforthelowerprevailingthree monthliborof5 00 ratherthanthecontractedamountof5 48 toseehowthiscontractisusedforhedging supposethatamarketparticipantisconcernedthatitsborrowingcostssixmonthsfromnowaregoingtobehigher toprotectitself ittakesashort selling positionintheeurodollarfuturescontractsuchthatariseinshort terminterestrateswillbenefit copyright 2010pearsoneducation inc publishingasprenticehall 27 19 currentlytradedinterest ratefuturescontracts continued eurodollarfuturestoseethis considerourpreviousillustrationintheeurodollarfuturesat94 52 5 48 rate supposeatthesettlementdatethethree monthliborincreasesto6 00 and therefore thesettlementindexpriceis94 00 thismeansthatthesellersoldthecontractfor94 52andpurchaseditfor94 00 realizingagainof0 52or52ticks thebuyermustpaytheseller52 25 1 300 thegainfromtheshortfuturespositionisthenusedtooffsetthehigherborrowingcostresultingfromariseinshort terminterestrates copyright 2010pearsoneducation inc publishingasprenticehall 27 20 currentlytradedinterest ratefuturescontracts continued euriborfuturesforeuro denominatedloansandderivatives whenareferencerateisused itistypicallytheeurointerbankofferedrate euribor euriboristherateondepositsdenominatedineuros theeuriborfuturescontract tradedonthenyseeuronext andtheeurodollarfuturescontractarethemostactivelytradedfuturescontractsintheworld theeuriborfuturescontractissimilartotheeurodollarfuturescontract theunitoftradingis 1 000 000 anditisacash settledcontract theunderlyingis30 dayeuribor copyright 2010pearsoneducation inc publishingasprenticehall 27 21 currentlytradedinterest ratefuturescontracts continued federalfundsfuturescontractdepositoryinstitutionsarerequiredtomaintainreservesatthefederalreserve banksthathaveexcessreservesdonotearninterestonthosefunds however theycanlendthosefundsthroughthefederalreservetootherbanksthatneedreserves thefundslentarecalledfederalfunds theinterestrateatwhichbankslendbalancesatthefederalreservetootherbanksonanovernightbasiscalledthefederalfundsrateorsimplyfedfundsrate the30 dayfederalfundsfuturescontract tradedonthecbot isdesignedforfinancialinstitutionsandbusinessesthatwanttocontroltheirexposuretomovementsinthefederalfundsrate thesecontractsaremarkedtomarketusingtheeffectivedailyfederalfundsrateasreportedbythefederalreservebankofnewyork copyright 2010pearsoneducation inc publishingasprenticehall 27 22 currentlytradedinterest ratefuturescontracts continued treasurybondfuturesthetreasurybondfuturescontractistradedonthechicagoboardoftrade cbot theunderlyinginstrumentforatreasurybondfuturescontractis 100 000parvalueofahypothetical20 year6 couponbond thefuturespriceisquotedintermsofparbeing100 quotesarein32ndsof1 thus aquoteforatreasurybondfuturescontractof97 16means97and16 32nds or97 50 soifabuyerandselleragreeonafuturespriceof97 16 thismeansthatthebuyeragreestoacceptdeliveryofthehypotheticalunderlyingtreasurybondandpay97 50 ofparvalue andtheselleragreestoaccept97 50 ofparvalue becausetheparvalueis 100 000 thefuturespricethatthebuyerandselleragreetotransactforthishypotheticaltreasurybondis 97 500 copyright 2010pearsoneducation inc publishingasprenticehall 27 23 currentlytradedinterest ratefuturescontracts continued treasurybondfuturestheminimumpricefluctuationforthetreasurybondfuturescontractisa32ndof1 thedollarvalueofa32ndfora 100 000parvalue theparvaluefortheunderlyingtreasurybond is 31 25 thesellerofatreasurybondfutureswhodecidestomakedeliveryratherthanliquidatehispositionbybuyingbackthecontractpriortothesettlementdatemustdeliversometreasurybond thecbotallowsthesellertodeliveroneofseveraltreasurybondsthatthecbotdeclaresisacceptablefordelivery thespecificbondsthatthesellermaydeliverarepublishedbythecbotpriortotheinitialtradingofafuturescontractwithaspecificsettlementdate copyright 2010pearsoneducation inc publishingasprenticehall 27 24 currentlytradedinterest ratefuturescontracts continued treasurybondfuturesexhibit27 2showsthetreasuryissuesthatthesellercanselectfromtodelivertothebuyeroffour seetruncatedversionofexhibit27 2inoverhead27 25 treasurybondfuturescontractbysettlementmonth thecbotmakesitsdeterminationofthetreasuryissuesthatareacceptablefordeliveryfromalloutstandingtreasuryissuesthatmeetthefollowingcriteria anissuemusthaveatleast15yearstomaturityfromthedateofdeliveryifnotcallable inthecaseofcallabletreasurybonds theissuemustnotbecallableforatleast15yearsfromthefirstdayofthedeliverymonth copyright 2010pearsoneducation inc publishingasprenticehall 27 25 exhibit27 2treasurybondsacceptablefordeliveryandconversionfactorsfortreasury copyright 2010pearsoneducation inc publishingasprenticehall 27 26 currentlytradedinterest ratefuturescontracts continued treasurybondfuturesinadditiontotheeligibleissuesshownintheexhibit27 2 inoverhead27 25 newlyissuedtreasurybondswouldqualifyfordelivery tomakedeliveryequitabletobothparties thecbothasintroducedconversionfactorsfordeterminingtheinvoicepriceofeachacceptabledeliverabletreasuryissueagainstthetreasurybondfuturescontract theconversionfactorisdeterminedbythecbotbeforeacontractwithaspecificsettlementdatebeginstrading exhibit27 2 inoverhead27 25 showsforeachoftheacceptabletreasuryissuesforeachcontractthecorrespondingconversionfactor theconversionfactorisconstantthroughoutthetradingperiodofthefuturescontractforagivensettlementmonth theshortmustnotifythelongoftheactualbondthatwillbedeliveredonedaybeforethedeliverydate copyright 2010pearsoneducation inc publishingasprenticehall 27 27 currentlytradedinterest ratefuturescontracts continued treasurybondfuturesthepricethatthebuyermustpaythesellerwhenatreasurybondisdeliverediscalledtheinvoiceprice whichisgivenas invoiceprice contractsize futurescontractsettlementprice conversionfactor accruedinterestinselectingtheissuetobedelivered theshortwillselectfromallthedeliverableissuestheonethatcostsless thisissueisreferredtoasthecheapest to deliverissue itplaysakeyroleinthepricingofthisfuturescontract knowingthepriceofthetreasuryissue thesellercancalculatethereturn whichiscalledtheimpliedreporate thecheapest to deliverissueisthentheoneissueamongallacceptabletreasuryissueswiththehighestimpliedreporatebecauseitistheissuethatwouldgivethesellerofthefuturescontractthehighestreturnbybuyingandthendeliveringtheissue thisisdepictedinexhibit27 3 seeoverhead27 28 copyright 2010pearsoneducation inc publishingasprenticehall 27 28 exhibit27 3determinationofcheapest to deliverissuebasedontheimpliedreporate impliedreporate rateofreturnbybuyinganacceptabletreasuryissue shortingthetreasurybondfutures anddeliveringtheissueatthesettlementdate acceptabletreasuryissue 1 buythisissue calculatereturn impliedreporate deliverthisissueatfuturesprice deliverissue 1 impliedreporate 1 thecheapest to deliverissueisthatwhichproducesthemaximumimpliedreporate acceptabletreasuryissue n acceptabletreasuryissue 3 acceptabletreasuryissue 2 deliverissue n deliverissue 2 deliverissue 3 impliedreporate n impliedreporate 3 impliedreporate 2 copyright 2010pearsoneducation inc publishingasprenticehall 27 29 currentlytradedinterest ratefuturescontracts continued treasurybondfuturesinadditiontothechoiceofwhichacceptabletreasuryissuetodeliver sometimesreferredtoasthequalityoptionorswapoption theshortpositionhastwomoreoptionsgranted theshortpositionispermittedtodecidewheninthedeliverymonthdeliveryactuallywilltakeplace thisiscalledthetimingoption theotheroptionistherightoftheshortpositiontogivenoticeofintenttodeliverupto8 00p m chicagotimeonthedatewhenthefuturessettlementpricehasbeenfixed thisoptio