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Eurodollar futures

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Boris Skorodumov

Eurodollar futures

Hello All,

1. Suppose, I have Eurodollar futures quotes and would like to derive zero curve from them.
Does QuantLib have any test examples for this?

2. This question is not exactly related to QuantLib. But I though that someone can suggest.
Suppose, I would like to derive zero curve from relevant market data. What kind of market data people usually use in order to do it?

Thank you in advance,

Boris.

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Brent A Ritterbeck

Re: Eurodollar futures

Boris,
Hull's Options, Futures, and Other Derivatives, 6th Edition, gives an explanation of how to bootstrap the zero curve on pages 82-84. The market data he uses to derive the U.S. Treasury zero curve are a 3-, 6-, and 12-month zeros and a 18- and 24-month with coupon >0. Since I am curious as to how this works in the real world, I am hoping someone who is actually working as a quant can verify if this is the method used in practice.

Brent Ritterbeck
________________________________________
From: Boris Skorodumov [[hidden email]]
Sent: Tuesday, February 24, 2009 9:28 AM
To: QuantLib Users
Subject: [Quantlib-users] Eurodollar futures

Hello All,

1. Suppose, I have Eurodollar futures quotes and would like to derive zero curve from them.
Does QuantLib have any test examples for this?

2. This question is not exactly related to QuantLib. But I though that someone can suggest.
Suppose, I would like to derive zero curve from relevant market data. What kind of market data people usually use in order to do it?

Thank you in advance,

Boris.

------------------------------------------------------------------------------
Open Source Business Conference (OSBC), March 24-25, 2009, San Francisco, CA
-OSBC tackles the biggest issue in open source: Open Sourcing the Enterprise
-Strategies to boost innovation and cut costs with open source participation
-Receive a $600 discount off the registration fee with the source code: SFAD
http://p.sf.net/sfu/XcvMzF8H
_______________________________________________
QuantLib-users mailing list
[hidden email]
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Laurent Lefort

Re: Eurodollar futures

In reply to this post by Boris Skorodumov

Hi Boris,

1. If you have a look at the Swap project you'll find how to build a "depo-futures-swap" curve. I don't think there's a convexity adjustment included in the example, you may want to add that if you'd like to be precise. If you want to stop your curve at the last quoted future then just get rid of the swap points in the example.

2. You can only use data relevant to the product you are trying to price. Let's say you're trying to price a swap and you want to imply from the market USD 3M Libor forwards, you just need deposit rates up to 3M, Eurodollar futures (the underlying rate is the 3M Libor so it's correct) and swap rates (against 3M which is the standard in the us). But let's say you're trying to do something a bit funky like implying USD 1M or 12M Libor forwards, well that's another story. That's where basis comes into play and it all gets messy... you need basis swaps, i.e. even though mathematically a floating leg seems to be worth the same whatever its frequency, in practice it's not the case.

Keep in mind there's no way you can build a single curve to price anything you want. You have to take into account the basis effect and the credit component of curves. For instance a swap curve is an interbank curve so it would not make sense to use it to price a corporate bond for instance...same thing the other way around, you should not bootstrap a Treasuries curve to price a swap.

I hope it was more helpfull than confusing.

Laurent

On Tue, Feb 24, 2009 at 2:28 PM, Boris Skorodumov <[hidden email]> wrote:

Hello All,

1. Suppose, I have Eurodollar futures quotes and would like to derive zero curve from them.
Does QuantLib have any test examples for this?

2. This question is not exactly related to QuantLib. But I though that someone can suggest.
Suppose, I would like to derive zero curve from relevant market data. What kind of market data people usually use in order to do it?

Thank you in advance,

Boris.

------------------------------------------------------------------------------
Open Source Business Conference (OSBC), March 24-25, 2009, San Francisco, CA
-OSBC tackles the biggest issue in open source: Open Sourcing the Enterprise
-Strategies to boost innovation and cut costs with open source participation
-Receive a $600 discount off the registration fee with the source code: SFAD
http://p.sf.net/sfu/XcvMzF8H
_______________________________________________
QuantLib-users mailing list
[hidden email]
https://lists.sourceforge.net/lists/listinfo/quantlib-users

------------------------------------------------------------------------------
Open Source Business Conference (OSBC), March 24-25, 2009, San Francisco, CA
-OSBC tackles the biggest issue in open source: Open Sourcing the Enterprise
-Strategies to boost innovation and cut costs with open source participation
-Receive a $600 discount off the registration fee with the source code: SFAD
http://p.sf.net/sfu/XcvMzF8H
_______________________________________________
QuantLib-users mailing list
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Boris Skorodumov

Re: Eurodollar futures

In reply to this post by Brent A Ritterbeck

Brent,
I am familiar with 82-84 pages. I am note sure that this is the way people do for practical purposes.
I will be interesting to hear from people who actually do it. One of the way would be using Eurodollar futures.
Boris.

On Tue, Feb 24, 2009 at 11:16 AM, Brent A Ritterbeck <[hidden email]> wrote:

Boris,
Hull's Options, Futures, and Other Derivatives, 6th Edition, gives an explanation of how to bootstrap the zero curve on pages 82-84. The market data he uses to derive the U.S. Treasury zero curve are a 3-, 6-, and 12-month zeros and a 18- and 24-month with coupon >0. Since I am curious as to how this works in the real world, I am hoping someone who is actually working as a quant can verify if this is the method used in practice.

Brent Ritterbeck
________________________________________
From: Boris Skorodumov [[hidden email]]
Sent: Tuesday, February 24, 2009 9:28 AM
To: QuantLib Users
Subject: [Quantlib-users] Eurodollar futures

Hello All,

1. Suppose, I have Eurodollar futures quotes and would like to derive zero curve from them.
Does QuantLib have any test examples for this?

2. This question is not exactly related to QuantLib. But I though that someone can suggest.
Suppose, I would like to derive zero curve from relevant market data. What kind of market data people usually use in order to do it?

Thank you in advance,

Boris.

Boris Skorodumov

Re: Eurodollar futures

In reply to this post by Laurent Lefort

Laurent,
Thank you for the reply.
>You can only use data relevant to the product you are trying to price.
Simple example. Suppose, I have European call on futures contract. The underlying of futures contract could be natural gas. To price it, I need to know interest rate up to option expiration. I would like to find those interest rates for different option maturities. What method would you suggest to use to find zero curve? or another words, what interest rate market data relevant in my case?

Thank you again,
Boris.

On Tue, Feb 24, 2009 at 1:44 PM, Laurent Lefort <[hidden email]> wrote:

Hi Boris,

1. If you have a look at the Swap project you'll find how to build a "depo-futures-swap" curve. I don't think there's a convexity adjustment included in the example, you may want to add that if you'd like to be precise. If you want to stop your curve at the last quoted future then just get rid of the swap points in the example.

2. You can only use data relevant to the product you are trying to price. Let's say you're trying to price a swap and you want to imply from the market USD 3M Libor forwards, you just need deposit rates up to 3M, Eurodollar futures (the underlying rate is the 3M Libor so it's correct) and swap rates (against 3M which is the standard in the us). But let's say you're trying to do something a bit funky like implying USD 1M or 12M Libor forwards, well that's another story. That's where basis comes into play and it all gets messy... you need basis swaps, i.e. even though mathematically a floating leg seems to be worth the same whatever its frequency, in practice it's not the case.

Keep in mind there's no way you can build a single curve to price anything you want. You have to take into account the basis effect and the credit component of curves. For instance a swap curve is an interbank curve so it would not make sense to use it to price a corporate bond for instance...same thing the other way around, you should not bootstrap a Treasuries curve to price a swap.

I hope it was more helpfull than confusing.

Laurent

On Tue, Feb 24, 2009 at 2:28 PM, Boris Skorodumov <[hidden email]> wrote:

Hello All,

1. Suppose, I have Eurodollar futures quotes and would like to derive zero curve from them.
Does QuantLib have any test examples for this?

2. This question is not exactly related to QuantLib. But I though that someone can suggest.
Suppose, I would like to derive zero curve from relevant market data. What kind of market data people usually use in order to do it?

Thank you in advance,

Boris.

------------------------------------------------------------------------------
Open Source Business Conference (OSBC), March 24-25, 2009, San Francisco, CA
-OSBC tackles the biggest issue in open source: Open Sourcing the Enterprise
-Strategies to boost innovation and cut costs with open source participation
-Receive a $600 discount off the registration fee with the source code: SFAD
http://p.sf.net/sfu/XcvMzF8H
_______________________________________________
QuantLib-users mailing list
[hidden email]
https://lists.sourceforge.net/lists/listinfo/quantlib-users

------------------------------------------------------------------------------
Open Source Business Conference (OSBC), March 24-25, 2009, San Francisco, CA
-OSBC tackles the biggest issue in open source: Open Sourcing the Enterprise
-Strategies to boost innovation and cut costs with open source participation
-Receive a $600 discount off the registration fee with the source code: SFAD
http://p.sf.net/sfu/XcvMzF8H
_______________________________________________
QuantLib-users mailing list
[hidden email]
https://lists.sourceforge.net/lists/listinfo/quantlib-users

Laurent Lefort

Re: Eurodollar futures

The price of an option should match the value of a replicating portfolio composed of the underlying and cash. So the interest rate that you need to use should reflect your funding costs (how much you pay to borrow money or how much interest you get on it). Using a standard libor curve should do it. Anyway i'm sure the rho of your option is going to be small enough so that it's not really going to make a huge difference on your price.

Laurent