FMP 19. Interest Rate Futures

Learning Objectives

1) Identify the most commonly used day count conventions, describe the markets that each one is typically used in, and apply each to an interest calculation.

2) Calculate the conversion of a discount rate to a price for a US Treasury bill.

3) Differentiate between the clean and dirty price for a US Treasury bond; calculate the accrued interest and dirty price on a US Treasury bond.

4) Explain and calculate a US Treasury bond futures contract conversion factor.

5) Calculate the cost of delivering a bond into a Treasury bond futures contract.

6) Describe the impact of the level and shape of the yield curve on the cheapest-to-deliver Treasury bond decision.

7) Calculate the theoretical futures price for a Treasury bond futures contract.

8) Calculate the final contract price on a Eurodollar futures contract and compare Eurodollar futures to FRAs.

9) Describe and compute the Eurodollar futures contract convexity adjustment.

10) Explain how Eurodollar futures can be used to extend the LIBOR zero curve.

11) Calculate the duration-based hedge ratio and create a duration-based hedging strategy using interest rate futures.

12) Explain the limitations of using a duration-based hedging strategy.