The Financial Times Handbook of Financial Engineering, 3rd Edition

6

SHORT-TERM INTEREST RATE FUTURES

6.1 Definitions

6.2 STIR contracts pricing

6.3 Basis

6.4 Convergence

6.5 Behaviour of futures prices

6.6 Basic hedging example

6.7 Short-term futures contracts compared

6.8 Comparison of futures and FRAs

6.9 Spread positions

The previous chapter introduced financial futures, and explained the terminology and procedures common to all contracts. In this chapter we will explore in detail one of the most heavily traded contracts – the short-term interest rate (STIR) future. Nearly all major exchanges offering financial futures contracts provide a market in these instruments, sometimes in more than one currency. NYSE Liffe, for example, lists three-month contracts in sterling, dollars, euros, Swiss francs and ...