Re: [Quantlib-users] Interest Rate Futures

[<Xav...@fi...>]

Hi Andrea,
I can only answer to the first part of the question:
Is that true?
Yes, this is because of the difference in the nature of Futures and FRA=

contracts.
Usually one say that it is unappropriate to use future prices directly =
in
yield curve constructions the future rate must be adjusted such that
future rate =3D forward rate + convexity adjustement.
In theory it is possible to make an arbitrage in buying a FRA and selli=
ng
the same number of future contracts, the model of convexity adjustment
consists of finding the required fixed rate of a fra such that this
arbitrage is not possible.
The problem now is that  to calculate this convexity adjustement you ne=
ed:
- correlations between all futures contracts
-  Volatility of future conctracts.

Maybe I'm wrong but what I've seen is that market participants are igno=
ring
it because it's too complex to measure.
(If you have an accurate idea of the correlation between 3m and 12m fut=
ures
contracts tell me!)
Of someone else has another point of view I'd be happy to read it.
Bye
Xavier



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 [Quantlib-users] Interest Rate Futures          =20
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                    14/02/2003 09:13                                   =
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Hi, I would like to ask you something

I have some little problem bootstrapping a term structure using future
rates, so I tried to understand something about them...

I read Hull about 3 months EURIBOR interest rate futures and I read tha=
t a
future price of Z does not imply that the forward interest rate for the=
 3
months following the expiry date is 100-Z because of convexity adjustme=
nt.

Is that true? And if it is, how does the class FutureRateHelper handle =
it?

thanks

andrea

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