Trying to find out the interest rate built into the ES contract

Sky123987 · Jan 27, 2008

Hi,

Someone said that the interest rate that is built into this ES contract is equivalent to the eurodollar futures. Is this true? I'm not sure why eurodollar futures would indicate this. This someone told me that the interest rate is 100 - the eurodollar futures which would make the interest in the ES contract only ~ 3.4 %. Could this be correct?

Thanks

nitro · Jan 27, 2008

The interest rate embedded in the SP500 is essentially LIBOR, to within a very small "error" tolerance (margin, etc).

nitro

startraitor · Jan 27, 2008

Right here. There are additional matrix if you do some snoopin and poopinn based on libor and treas.

http://www.cme.com/trading/prd/equity/fairvalue.html

gnome · Jan 27, 2008

"LIBOR"? Why would an American Index based upon American companies use a European interest rate?

I always thought it was the 3-month T-Bill.

Could be that it makes no significant difference.

startraitor · Jan 27, 2008

Libor is what most rates are bases + on.

crgarcia · Jan 28, 2008

Quote from Sky123987:

Hi,

Someone said that the interest rate that is built into this ES contract is equivalent to the eurodollar futures. Is this true? I'm not sure why eurodollar futures would indicate this. This someone told me that the interest rate is 100 - the eurodollar futures which would make the interest in the ES contract only ~ 3.4 %. Could this be correct?

Thanks

There's no interest "built in" into the ES (or any contracts), in fact when there's backwardation, it would suggest negative interest rates, and there's no such thing.

Futures premium is based on market expectation, and supply/demand of people to pay the premium of these expectations.

Sky123987 · Jan 28, 2008

Quote from nitro:

The interest rate embedded in the SP500 is essentially LIBOR, to within a very small "error" tolerance (margin, etc).

nitro

thank you for your response nitro. So I looked up LIBOR and I see that it is trading @ 96.94? what would that indicate the interest rate is?? 100 - 96.94, 3.07%?

Thanks

Surdo · Jan 28, 2008

"The fair value premium equals the interest earned on the spot index minus dividends earned by the stocks that comprise the index. The relevant time period is from the current date until the future's expiration."

http://www.indexarb.com/dividendAnalysis.html

Sky123987 · Jan 28, 2008

Quote from Surdo:

"The fair value premium equals the interest earned on the spot index minus dividends earned by the stocks that comprise the index. The relevant time period is from the current date until the future's expiration."

http://www.indexarb.com/dividendAnalysis.html

thank you surdo, I looked at that web page and I see that under the yield curve they only use the interest rate @ 3.38 today for the ES march contract, could that be true that the interest rate is only that much?

THanks