futures price

S

sccz97

I'm trying to get the theoretical futures price from the spot for eurusd and I'm running into some problems. For the futures at the near end of the curve (at the moment Jun06) I get a price that is the same as what the current 6E Jun06 is trading at. However, for the Sep06 and Dec06 futures mine are quite some way off. I have the expy as the 3rd monday of the month so:
Jun-19
Sep-18
Dec-18
With a spot rate of 1.2796 this is where the futures were trading at:
Jun06 1.2807
Sep06 1.2880
Dec06 1.2946

However when I calculate the theoretical price I get
Jun06 1.2807
Sep06 1.2887
Dec06 1.2967

All I'm doing is a simple S0 * exp(r * t)

where:
S0 = spot price
r = rate differential (0.025)
t = time to maturity in years

Am I missing something here?
 
PM sent!

You can't say the differential is 2.5% - it is not the difference in the repo and fed funds rates but rather the money market rates. Thus if the yield curve for the currencies is a different shape so the points will change.

For example: Say the Fed funds was 5% and the next move was expected to be down, the money market rate for 6 months could be 4.5%. Now assume the ECB rate was 2.50% but rates were expected to be hiked sharply then the 6 month rate could be 3%.

Thus the true differntial for the next 6 months is only 1.5% compared to the actual difference between the respective rates of 2.5% - thus affecting the points calculation.
 
Lon Eagle is right. You may consider use the difference of two currencies' Libor for the same term as the r. Historical Libor can be found at BBA. I don't know where one can get the real-time data.

Try arbitrage??
 
just reverse calc the r for each expiry month that'll tell u where the mkt sees the spread to be at those particular dates... and good luck to try & arb that!
 
You must log in or register to reply here.
Back
Top