Fed Funds Futures Variance Futures

Damir Filipović, Anders Bjerre Trolle

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Abstrakt

We develop a novel contract design, the fed funds futures (FFF) variance futures, which reflects the expected realized basis point variance of an underlying FFF rate. The valuation of short-term FFF variance futures is completely model-independent in a general setting that includes the cases where the underlying FFF rate exhibits jumps and where the realized variance is computed by sampling the FFF rate discretely. The valuation of longer-term FFF variance futures is subject to an approximation error which we quantify and show is negligible. We also provide an illustrative example of the practical valuation and use of the FFF variance futures contract.
OriginalsprogEngelsk
BogserieQuantitative Finance
Vol/bind16
Udgave nummer9
Sider (fra-til)1413-1422
Antal sider10
DOI
StatusUdgivet - sep. 2016
Udgivet eksterntJa

Emneord

  • Fed funds futures
  • Funding costs
  • Unsecured interbank money market

Citationsformater