The document discusses several potential methods for market making in Euribor futures on Eurex. It includes the current bid and ask prices on Liffe for Euribor outrights and calendars. It then proposes some basic approaches for making a market on Eurex, including copying Liffe's prices with a small spread, making prices around Liffe's levels, and using a method similar to what was done in Eurodollar futures where the bid or ask matches Liffe and risks are laid off in calendar spreads.
This short course introduces novice traders to spread trading strategies on the US Treasury futures market. . Answers to questions relating to the yield curve, fixed income markets, and economic macro-fundamentals are offered.
Since their introduction in the 1990s short term derivatives instruments have become widely used. Their popularity has increased in the wake of the 2007/2008 financial crisis with trading growing by 33% from 2008 to mid 2009 according to the BIS.
It is due mainly to the fact that LIBOR-based instruments often did not capture movements in policy rates as a result of credit-induced widening in LIBOR rates.
Hedgers increased their usage of short-term instruments in order to protect their cash flows better from unexpected moves in spreads and/or policy rates. Meanwhile, speculators increased their trading of more tailored products such as OIS to express views on policy rates while becoming far more active in the basis markets to take advantage of spread movements.
This tutorial focuses on the Libor OIS basis trade. It starts with the building blocks of the LIBOR and moves on to cover the most common instruments in the front-end and basis markets : FRAs and OIS. The salient features of each instrument and the full trade cycle from idea generation and set up, to valuation and marked to market, are presented and illustrated using Bloomberg pricing and analytics.
This short course introduces novice traders to spread trading strategies on the US Treasury futures market. . Answers to questions relating to the yield curve, fixed income markets, and economic macro-fundamentals are offered.
Since their introduction in the 1990s short term derivatives instruments have become widely used. Their popularity has increased in the wake of the 2007/2008 financial crisis with trading growing by 33% from 2008 to mid 2009 according to the BIS.
It is due mainly to the fact that LIBOR-based instruments often did not capture movements in policy rates as a result of credit-induced widening in LIBOR rates.
Hedgers increased their usage of short-term instruments in order to protect their cash flows better from unexpected moves in spreads and/or policy rates. Meanwhile, speculators increased their trading of more tailored products such as OIS to express views on policy rates while becoming far more active in the basis markets to take advantage of spread movements.
This tutorial focuses on the Libor OIS basis trade. It starts with the building blocks of the LIBOR and moves on to cover the most common instruments in the front-end and basis markets : FRAs and OIS. The salient features of each instrument and the full trade cycle from idea generation and set up, to valuation and marked to market, are presented and illustrated using Bloomberg pricing and analytics.
Evolution of Interest Rate Curves since the Financial CrisisFrançois Choquet
This is a presentation given to Bloomberg end users working in front, middle and back offices in Dec. 2010. It highlights the financial crisis and the subsequent shift of financial instruments used to construct a valid interest rate curve. It outlines the methodology to build a reliable curve with Deposits, FRAs, Futures and Swaps and defines the validation principles.
This workshop presented to staff in Sales and Analytics is an overview of the eurodollar futures contract. It focuses on the trading mechanics including some arbitrage and hedging samples and an in-depth study case on trading the TED spreads with details on the calculation and presentation of Bloomberg analytics.
Evolution of Interest Rate Curves since the Financial CrisisFrançois Choquet
This is a presentation given to Bloomberg end users working in front, middle and back offices in Dec. 2010. It highlights the financial crisis and the subsequent shift of financial instruments used to construct a valid interest rate curve. It outlines the methodology to build a reliable curve with Deposits, FRAs, Futures and Swaps and defines the validation principles.
This workshop presented to staff in Sales and Analytics is an overview of the eurodollar futures contract. It focuses on the trading mechanics including some arbitrage and hedging samples and an in-depth study case on trading the TED spreads with details on the calculation and presentation of Bloomberg analytics.
2. Euronext Liffe Euribor
Ex A Opposite I have
copied over the bid
Month size Bid Ask size
ask and sizes of the
euribor outrights on
Dec_08 100 95.995 96.000 500
Mar_09 450 96.495 96.500 80
LIFFE. Obviously the
Jun_09 250 96.655 96.660 170
bid asks like all
Sep_09 305 96.595 96.600 80
Dec_09 250 96.280 96.290 402
markets are
Mar_10 85 96.170 96.175 125
substantially reduced
Jun_10 100 95.960 95.965 130
from recent history.
Sep_10 105 95.780 95.785 93
3. Eurex Euribor
Opposite are the bid asks
Ex B which are currently populating
the Eurex Euribor prices.
Month size Bid Ask size
(bid/Ask/Size) As you can see
these prices are ridiculously
Dec_08 100 95.985 96.010 100 wide compared to the primary
market. In my opinion, in a
Mar_09 100 96.485 96.510 100 market which is hungry for
Jun_09 75 96.640 96.670 75
liquidity in all asset classes,
making prices in the eurex
Sep_09 75 96.580 96.610 75 euribor would work very simply
and effectively. Your prices
Dec_09 75 96.270 96.295 75 would not have to be
exceptionally tight. I have
Mar_10 50 96.160 96.185 50
various ideas how to start
Jun_10 50 95.950 95.975 50 pretty simple market making
on Eurex.
Sep_10 50 95.770 95.795 50
4. Euronext Liffe Euribor Calendars
Ex E
Opposite I have pasted
the Calendar spreads
Spread Size Bid Ask Size listed on Liffe for the 3mth
euribors. These should
z8/h9 200 -50.0 -49.5 700
be an integral part of any
h9/m9 300 -16.0 -15.5 1000
market making process
m9/u9 800 6.0 6.5 49 from liffe to euribor. When
u9/z9 1500 31.0 31.5 500 I did the cme/liffe euro$
these were my inside
z9/h10 828 11.0 11.5 50
market edge and enabled
h10/m10 600 20.5 21.5 1200
me to manage my risk.
m10/u10 2000 17.5 18.5 1856
5. Most Basic method. Half a tic edge
eurex priced around liffe.
Ex C
Opposite I have
copied the most basic
Month size Bid Ask size
method to make a
Dec_08 150 95.990 96.005 150 market around liffe
Mar_09 150 96.490 96.505 150 prices. Simply making
Jun_09 150 96.650 96.665 150 a price around liffe.
Sep_09 150 96.590 96.605 150 This of course would
Dec_09 100 96.275 96.295 100 be perfect in an ideal
Mar_10 100 96.165 96.180 100
world. And to test the
Jun_10 100 95.955 95.970 100
application this would
Sep_10 100 95.775 95.790 100
be the place to start.
6. Malcolm Method
Opposite is what I did in euro$. In many
cases my price is the same as one of Liffe’s
Ex D
offers or bids. I calculate my bid ask spread
based off the edge I can create by selling
the offer or buying the bid. If I can lay off the
Month size Bid Ask size edge into another contract and produce
edge in the calendar spread I will make the
Dec_08 250 95.990 96.000 250
same bid or ask as liffe. This way I am sure
to be the best bid / offer and this will enable
the product to becoe attract to traders and
Mar_09 250 96.495 96.505 250 flow. The math is very simple. If you take my
bid in Dec 09, we are the same as Liffe, but
Jun_09 250 96.655 96.665 250 I know if I get given on the bid I have
options to sell mar10 at 96.17 (creating me
long the z9/h0 @ 11) if there is no edge I
Sep_09 250 96.595 96.605 250 will remain outside the liffe price. The next
stage is managing the calendar I have
Dec_09 150 96.280 96.290 150 created with a guaranteed stop on the 11
bid working an offer at 11.5 OCO. And the
process continues,
Mar_10 150 96.165 96.180 150
Jun_10 150 96.955 96.970 150
Sep_10 150 96.780 96.790 150