HW_ED_Futures_Bias() function  Previous topicNext topicFirst topicLast topic

HW_ED_Futures_Bias() function

HW_ED_Futures_Bias(argument list…)

This function returns the size of the "convexity bias" in the simple implied forward rate when using Eurodollar/BAX futures contract. Given the quoted futures price and volatility structure, the function returns a quantity that should be added to the futures price before calculating the implied forward rate. The results are derived from the Hull-White model. See the paper in the reference section by George Kirikos (President of Leap of Faith Research Inc.) which derives the formulae. The function uses the following arguments:

Argument Description Restrictions
Valuation_Date valuation date (e.g. today) valid Excel date number
Futures_Expiry date at which the underlying futures contract expires (note: for US futures, this is 2 days after the last trading day) >= Valuation_Date
Deposit_Expiry date at which a deposit starting on the Futures_Expiry matures > Futures_Expiry
Deposit_Days number of days in the deposit in accordance with the day count convention (i.e. could differ from actual calendar difference) > 0
(e.g. 90 or 91)
Deposit_Year_Basis year basis used in determining payments >0, typically 360 or 365
Quoted_Futures_Price the quoted futures price for the contract none (typically less than 100, unless negative interest rates exist, e.g. sometimes in Japan!)
Short_Rate_Vol annual standard deviation of the short rate of interest, in decimal form (e.g. six percent entered as 0.06) > 0
Reversion_Rate mean reversion rate of the short rate of interest, in decimal form >= 0

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