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Worst of Wikipedia/STIR (view source)
Revision as of 18:59, 13 November 2008
, 18:59, 13 November 2008Removing templates that don't render or apply in MyWikiBiz
A '''short term interest rate (STIR) future''' is a [[Futures contract|future]] which derives its value from the interest rate at maturation. Common short term interest rate futures are [[Eurodollar]], [[Euribor]], [[Euroyen]], [[Short Sterling]] and [[Euroswiss]], which are calculated on [[LIBOR]] at settlement, with the exception of Euribor which is based on Euribor. This value is calculated as 100 - interest rate.
A '''short term interest rate (STIR) future''' is a [[Futures contract|future]] which derives its value from the interest rate at maturation. Common short term interest rate futures are [[Eurodollar]], [[Euribor]], [[Euroyen]], [[Short Sterling]] and [[Euroswiss]], which are calculated on [[LIBOR]] at settlement, with the exception of Euribor which is based on Euribor. This value is calculated as 100 - interest rate.
For example, an Z7H8 spread on Euroswiss can be calculated manually (this spread is going long on December and short in March, essentially betting that the yield curve between December and March will steepen) as being offered -.01, big -0.03 (from the prices currently 97.18-97.19 in Dec, 97.20-97.21 in Mar). In fact, the strategy currently has a big of -0.02, someone improving on the implied bid. Meanwhile, the offer of -.01 is part implied - currently 27 lots are offered, of which 3 lots are implied in from the 3 bid at 20 on March. On the other hand, the -0.02 spread is implied in the bids on Dec and the offers for March in the outright. This implied pricing is therefore very handy in improving liquidity, and because it is implemented by the exchange there is no risk in legging it, as the exchange guarantees the entire transaction.
For example, an Z7H8 spread on Euroswiss can be calculated manually (this spread is going long on December and short in March, essentially betting that the yield curve between December and March will steepen) as being offered -.01, big -0.03 (from the prices currently 97.18-97.19 in Dec, 97.20-97.21 in Mar). In fact, the strategy currently has a big of -0.02, someone improving on the implied bid. Meanwhile, the offer of -.01 is part implied - currently 27 lots are offered, of which 3 lots are implied in from the 3 bid at 20 on March. On the other hand, the -0.02 spread is implied in the bids on Dec and the offers for March in the outright. This implied pricing is therefore very handy in improving liquidity, and because it is implemented by the exchange there is no risk in legging it, as the exchange guarantees the entire transaction.
==Arbitrage==
==Arbitrage==