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A Comparison of Forward and Futures Prices of an Interest Rate-Sensitive Financial Asset

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Author Info
 Meulbroek, Lisa
Abstract

This paper focuses on contractual distinctions as an explanation for the price divergence between futures and forward contracts. Specifically, it investigates the effect of marking-to-market on the observed price differences using the pricing model described in Cox, Ingersoll, and Ross (1981). Using previously unavailable data, this paper employs Eurodollars, an interest rate-sensitive financial asset, to test the Cox, Ingersoll, and Ross model. Unlike prior empirical studies, test results support both the weak prediction concerning the sign of the average price difference and the stronger prediction that specific covariances explain the variation in the price differences. Copyright 1992 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 47 (1992)
Issue (Month): 1 (March)
Pages: 381-96
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Handle: RePEc:bla:jfinan:v:47:y:1992:i:1:p:381-96

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  1. Anurag Gupta & Marti G. Subrahmanyam, 1999. "An Empirical Examination of the Convexity Bias in the Pricing of Interest Rate Swaps," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-001, New York University, Leonard N. Stern School of Business-. [Downloadable!]
  2. David K. Backus & Stanley E. Zin, 1994. "Reverse Engineering the Yield Curve," NBER Working Papers 4676, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Antulio N. Bomfim, 2003. "Counterparty credit risk in interest rate swaps during times of market stress," Finance and Economics Discussion Series 2003-09, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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