TY - JOUR
T1 - Year-end seasonality in one-month LIBOR derivatives
AU - Neely, Christopher J.
AU - Winters, Drew B.
PY - 2006/3/1
Y1 - 2006/3/1
N2 - This article examines the markets for one-month LIBOR futures contracts and options on those futures for a year-end price effect consistent with the previously identified year-end rate increase in one-month LIBOR. The cash market rate increase appears in forward rates and derivative prices, which allows the derivatives to properly hedge year-end interest rate risk. However, while the year-end effect appears in the derivative contract, these derivative contracts provide biased forecasts of both future interest rates and their volatility. The bias appears to be different at the end of the year for the LIBOR futures contract but not for the options contract. The information in the derivatives almost always subsumes simple benchmark forecasts.
AB - This article examines the markets for one-month LIBOR futures contracts and options on those futures for a year-end price effect consistent with the previously identified year-end rate increase in one-month LIBOR. The cash market rate increase appears in forward rates and derivative prices, which allows the derivatives to properly hedge year-end interest rate risk. However, while the year-end effect appears in the derivative contract, these derivative contracts provide biased forecasts of both future interest rates and their volatility. The bias appears to be different at the end of the year for the LIBOR futures contract but not for the options contract. The information in the derivatives almost always subsumes simple benchmark forecasts.
UR - http://www.scopus.com/inward/record.url?scp=84901791349&partnerID=8YFLogxK
U2 - 10.3905/jod.2006.616867
DO - 10.3905/jod.2006.616867
M3 - Article
AN - SCOPUS:84901791349
SN - 1074-1240
VL - 13
SP - 47
EP - 65
JO - Journal of Derivatives
JF - Journal of Derivatives
IS - 3
ER -