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price for a future contract

U

uktous

Member
hi,

I know that the price for a eurodollar future contract is
10000 x (100 - 0.25 (100- Z))


Do we assume that we will 'settle' the position - i.e. no delivery - at the end of the contract?

What will happen if we take the delivery?
Actually what is the underlying asset for a interest rate future?
 
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The underlying asset here is a holding of zero coupon bonds with a face value of $1million. These zero coupon bonds don't actually exist though! They are just hypothetical bonds that always have a term of 1 year. The Z in the formula you've given represents the value of one of these bonds. The market will determine the value of Z (by supply and demand) based on the interest rates prevailing in the market.

This contract would be marked to market daily and settled in cash at the delivery date.
 
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