2010-3[1].-Products-(L1).pdf

[HC78]

Hi David,

in "Calculate the theoretical futures price for a Treasury bond futures contract" (Page 56 of 123), i do not understand what period cover the 35 days in this formula : "Quoted futures price = $125.095 – (6 * 148/(148+35))". Sould not be 148/365 ? I know that is is detail and that computation are not a lot changed but i really not see what these 35 days means.

Thank you for your help.
Hervé

 

[David Harper CFA FRM]

Hi Herve,

See screenshot below. Under these assumptions, the futures contract matures between the two coupons: 148 days into a tenor between coupons of 148+35; so 148/(148+35) is the fraction of coupon that will be accrued interest on maturity. And as quoted (clean) price = full (dirty) price - accrued interest (AI), the AI is subtracted.

I hope this helps (it is a tedious calculation that, to my knowledge, GARP has not quizzed on. Your question reflects a good understanding. I might not worry too much deeper, if time is short. FWIW) - David

http://learn.bionicturtle.com/images/forum/1109_tbond.png

 

[HC78]

Hi David,
thanks for your reply. I need to see further.

1/Value a currency swap based on a sequence of FRAs (p17of 123). Another way to compute is to have a present value approach :
- On USD side, compute PV of USD Cash flow
- on JPY side, i) compute Future Value of JPY cash flow, ii) compute Present value of JPY CF, iii) convert these JPY PV cash flow in USD with current FX rate (0,009091 in example)
- Compute Net above USD cash flows (Present valued) and sum to obtain price.
It avoids to compute all forward fx rate (based on interest rate parity).

Hope that could help.
Hervé