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Hi, just wondered are all interest rate futures quoted 100 minus rate or is it just short-term futures (up to 3 months)? I’ve just been reading about STIRs and wondered if they are treated like a different category of future with different traits? Are all interest rate futures in the P4 exam with periods of only 3 months? Thanks.
All futures in the exam are quoted as 100 – interest rate. (Although I do not know why you want to call it an index basis!)
Interest rate futures do not just deal with periods of only three month – there is always a choice available. They end on the quarter days. It is just that the profit or loss is always calculated over a three month period.
3 month futures are STIR’s!
My free lectures explain this in full.
I guess what I’m trying to get at is if January’s future is 93.50 = interest rate of 6.50% = a 12 month rate, but the length of contract is for a 3 month period, if we want to hedge for a period of say 6 months we have to increase the contract size (x 6/3), but is it possible to simply buy a 6 month contract instead?
If I understand the notes and lectures correctly it implies that for exam purposes we will only have to deal in 3 month contract lengths and “increase the bet” for periods longer than 3 months…Thanks 🙂
P.S. Just for the record I read in BPP P4 study text that “the interest rate on a short term interest rate futures contract is quoted on an index basis” 3.2 p 474
It was their choice of using “index” as a description – I’m not suite sure either! The fact that BPP said “on short term interest rate futures” rather than just “on futures” got me wondering if they were (other than the length of course) different from other interest rate futures. However as you have kindly confirmed that they are the only ones I need to concern myself with I’ll content myself with that – I’ll fetch my coat 🙂
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