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Why Three-Month Eurodollar Rates Do Not Directly Determine Six-Month LIBOR

Article Quant Q&A · Author: Billy Walsh
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Summary

The document asks how to infer a six-month LIBOR fixing from three-month Eurodollar futures. It identifies the futures-implied three-month rate as 100 minus the quoted futures price, expressed as a percentage, and asks how to extend that information to a six-month floating leg. The author is willing to assume no basis between swaps referencing three-month and six-month LIBOR.

The text provides no conversion method or answer. A three-month implied rate alone does not specify the six-month rate; a term-structure or basis assumption, or additional market quotes, would be needed to estimate it. The proposed no-basis assumption concerns swap floating legs, but the document does not explain how to apply it or how it relates to the futures quote. It is therefore a useful statement of a curve-construction question, rather than a complete procedure, and gives no empirical evidence or validation.

Key ideas

  • A Eurodollar futures quote implies a three-month rate using 100 minus the quoted price.
  • A three-month fixing alone does not determine the six-month LIBOR fixing.
  • The question proposes assuming no basis between three-month and six-month LIBOR swap legs.
  • The document does not provide a conversion method or evidence for that assumption.

Tags

FuturesFixed incomeDerivatives pricing
Full text
# How to convert 3-month ED to 6-month LIBOR?


# How to convert 3-month ED to 6-month LIBOR?












I know 3-month Eurodollar future prices and need to convert it to 6-month LIBOR.

I calculated the 3-month LIBOR as : (100 - ED price) / 100

How to continue from here?

Thanks for the help.

Edit: I can do the assumption that there's no difference basis between swaps that have 3- or 6-month libor as the floating leg. End goal is to calculate a swap floating leg as 6-month libor.

Billy

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.