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research article
Fed funds futures variance futures
2016
We develop a novel contract design, the fed funds futures (FFF) variance futures, which reflects the expected realized basis point variance of an underlying FFF rate. The valuation of short-term FFF variance futures is completely model-independent in a general setting that includes the cases where the underlying FFF rate exhibits jumps and where the realized variance is computed by sampling the FFF rate discretely. The valuation of longer-term FFF variance futures is subject to an approximation error which we quantify and show is negligible. We also provide an illustrative example of the practical valuation and use of the FFF variance futures contract.
Type
research article
Web of Science ID
WOS:000382559300007
Authors
Publication date
2016
Published in
Volume
16
Issue
9
Start page
1413
End page
1422
Peer reviewed
REVIEWED
EPFL units
Available on Infoscience
October 18, 2016
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