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Eurodollar Futures Were Cash Settled Against Three-Month LIBOR

Article Quant Q&A · Author: Alexander Maisuradze
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Summary

The document corrects a textbook description that presents a Eurodollar futures contract as a commitment to deliver a one-million-dollar, three-month time deposit. The answer explains that the CME contract was cash settled rather than physically delivered. Settlement used a published three-month LIBOR rate, so a long futures position did not require buying a deposit from a short counterparty.

The reply also gives a typical contract schedule: maturity on the third Wednesday of a month, with the relevant LIBOR setting from the preceding Monday. This helps distinguish the reference deposit tenor from an asset delivered at expiration. The exchange is brief and does not explain contract price conventions, profit and loss, or current successor benchmarks; its description is specifically framed around the historical Eurodollar contract and LIBOR.

Key ideas

  • CME Eurodollar futures were cash settled rather than settled by delivering a time deposit.
  • The contract settlement reference was a published three-month LIBOR rate.
  • A long Eurodollar futures position did not entail buying a deposit from the short position holder.
  • The cited typical schedule used a third-Wednesday maturity and a LIBOR setting from the prior Monday.
  • The answer does not cover contract valuation or benchmark changes after LIBOR.

Tags

FuturesFixed income
Full text
# Eurodollar Futures Contracts Technical details


# Eurodollar Futures Contracts Technical details












My textbook provides the following definition: A Eurodollar futures contract is traded on the Chicago Mercantile Exchange and: • Is a commitment to deliver a $1mm Eurodollar time deposit with a 3-month maturity;

I have a very basic question, which might seem too dummy-like but still: What should be the remaining maturity of the deposit to be delivered? Exactly 3 month remaining or it might be that I can deliver deposit which at the delivery moment will have 2 month and 27 days remaining, 2 months and 12 days, 1 month and 12 days, and so on, maybe even 1 day?

Also I was not able to find any detailed explanation about the meaning of being long/short in the Eurodollar Futures contract. If I enter into the long Eurodollar Futures position, as I understand, this means that I will have to buy deposit from someone with short position?

Could somebody please provide some source with this type of explanations, or just some detailed numerical example would help.

## Answer by dm63 (score 2)

https://quant.stackexchange.com/a/53806

I don’t know what text book you are reading, but a CME Eurodollar contract does not represent a commitment to enter into a time deposit. On the contrary , it is cash settled at maturity , using the published rate for 3month Libor. Usually, the contracts mature on the 3rd Wednesday of the month using the Libor setting on the prior Monday. The CME website has more details.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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