Eurodollar Futures Settlement and Three-Month Deposit Timing

Summary

The note clarifies the timing distinction between a Eurodollar futures contract and a separate three-month deposit used to interpret its rate. The futures contract is marked to market daily through its final settlement at maturity T; it does not make a later payment at T plus three months. The later cash flow belongs to the hypothetical deposit investment, not to the futures contract itself.

This distinction addresses a proposed calculation that combines a futures settlement amount with discounted deposit interest and then infers a contract adjustment. The answer explains why the assumed post-maturity futures payment is misplaced, but it does not provide a corrected derivation or walk through the numerical example. Readers should therefore treat it as a timing clarification rather than a complete explanation of the contract’s pricing or convexity adjustment.

Key ideas

• Eurodollar futures are settled through daily variation margin, with the final settlement at maturity T.
• The contract itself has no payment at T plus three months.
• A cash flow at T plus three months in the example belongs to a separate deposit investment.
• The answer corrects the timeline assumption but does not derive the quoted contract adjustment.

Tags

# The settlement and payment date of Eurodollar


# The settlement and payment date of Eurodollar












This is John Hull's book `Options, Futures and Other Derivatives 9th` `Page 142`

Suppose the maturity of a `Eurodollar futures` is $T.$

Then the settlement of futures is $T$ and the payment of deposit for the interest is $T+0.25?$

As this understanding, suppose enter rate of future is $F$ and the real rate of future is $P$ at $T.$ We would assume an interest rate of $F$ for the three-month period at time $T.$

Then we will receive the cash flow $(F-P)\times 0.25$ from futures settlement at $T$(suppose only pay one time at $T$) and receive the deposit of interest $P*0.25$ at $T+0.25,$ discounted the deposit into $T$ we have the total cash of $1$ contract $$(F-P)*0.25 +\dfrac{P*0.25}{1+F*0.25}.$$ To keep the the rate is still $F$ at $T,$ we should hold $k$ contract, then we have the equation $$\left((F-P)*0.25 +\dfrac{P*0.25}{1+F*0.25}\right)\times k = F.$$

I can not understand the result in the example $1/(1+0.035 * 0:25)= 0.9913$ contracts.

## Answer by dm63 (score 1, accepted)

https://quant.stackexchange.com/a/36047

The futures contract pays off every day during its life, with the last payment at T. There are no payments after that. When Hull is talking about a payment at T+.25 he is referring to the payoff of an investment that is separate from the futures contract.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.