Dear Sir,
I need your advise when dealing with basis price on futures. How determine the lenght of period from now to the point when basis price become zero.
Foe examle, in DAIKONCO(JUN15) question it is said. that now 1 August 05 and company is expecting to borrow 34 mln in five months with pepayment in 11 months. The december futures are currently quoted at 95.84.
The company can borrow now at 3.6%.
The current basis price should be (100-3.6)-95.84 = 0.56
But I need unuxpired basis to determine futere price right after the loan received (December). To do so I need to know when the fututes expires.
How can I do this taking into account the length of futere is 3 months.
Regards
Ask the Tutor ACCA AFM
Interest rate futures and basis price
5y ago#1The length of futures is not 3 months. 3 months is only relevant for the calculations of the gains or losses on the futures.
They are using December futures which mature in 7 months time.
They will close the futures deal on the date the loan starts which is in 5 months time.
Therefore the unexpired basis is 2 months.
I do suggest that you watch my free lectures on this :-)
Sign in to reply to this topic.