25

Swaps as Eurodollar Futures Positions

� A swap can also be viewed as a series of Eurodollar futures contracts.

� Consider a short position in a Eurodollar strip in which the short holder agrees to sell 10 Eurodollar deposits at the CME-index price of 94.5 (or discount yield of RD = 5.5%) with� Each of the contracts having a face value of $1,000,000 and maturity

of 6 months � The expirations on the strip being March 1st and September 1st for a

period of two and half years

26

Swaps as Eurodollar Futures Positions

� With the index at 94.5, the contract price on one Eurodollar futures contract is $972,500:

� The next slide shows the cash flows at the expiration dates from closing the 10 short Eurodollar contracts at the same assumed LIBOR used in the previous swap example, with the Eurodollar settlement index being 100 − LIBOR.

500,972$)000,000,1($100

)360/180)(5.5(100f0 =

−=