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Using Eurodollar Futures to Approximate Short-Term Forward Swaps

Article Quant Q&A · Author: gladallen
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Summary

The document asks where to find forward swap rates, giving as an example a swap beginning in a year with a fixed leg and a floating leg tied to LIBOR. One response points to a Bloomberg market listing for a specific US dollar forward swap contract. Another suggests that Eurodollar futures may be a practical source of listed prices for short-term swaps.

The futures suggestion rests on a caveat: the respondent considers the convexity adjustment negligible for short-term swaps. The exchange contains no rate quotes, calculation steps, or comparison between futures-implied rates and swap rates, so it does not demonstrate the approximation’s accuracy or define where it stops being appropriate. It is a brief pointer to market data and a possible proxy, rather than a complete pricing method. The discussion is specific to the LIBOR-era instruments named and does not address how to handle later benchmark transitions.

Key ideas

  • A forward swap rate can be sought through a market listing for the relevant currency and forward tenor.
  • Eurodollar futures are suggested as a source of listed prices for approximating short-term swap rates.
  • The suggested approximation assumes that the convexity adjustment is negligible for short-term swaps.
  • The document provides no price data or quantitative validation of the futures-based proxy.
  • The discussion concerns LIBOR-linked instruments and does not cover benchmark transitions.

Tags

Fixed incomeFuturesDerivatives pricing
Full text
# Swap prices (preferably based on 3 month LIBOR)?


# Swap prices (preferably based on 3 month LIBOR)?












Where can I find a listing of forward swap rates based on libor. E.g. pricing on a swap of rates floating over 30 day libor for 3 year fixed, one year from now?

## Answer by dm63 (score 1)

https://quant.stackexchange.com/a/25479

If you can get access to a professional bloomberg, the code for a 1yr-3yr forward swap in USd versus 3 month libor is USFS013 .Index Go. I dont know any other way.

## Answer by JoshK (score 0)

https://quant.stackexchange.com/a/25480

Are you sure you don't want just to look at ED futures? For short term swaps they are very easy to use and have listed prices. The convexity adjustment is negligible.

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