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Eurodollar Futures Pricing
Robert T. Daigler
Published in 1990

This paper examines the pricing and arbitrage of the CMEX Eurodollar futures contact by employing daily spot LIBOR rates. The term forward rate differs significantly from the futures rate, especially 6 to 9 months before futures expiration.
Moreover, the futures rate is consistently larger than the implied forward rate for 3 to 9 months before expiration. However, the relatively large size of the arbitrage bands at this point in time negate any arbitrage possibilities.
The use of overnight spot rates to determine the forward rate shows very large deviations between the futures and forward rate, with the direction of the deviation based on the specific futures expiration. Use of the overnight spot rate would have provided very significant arbitrage profits for the time period studied.
The pattern of term forward/futures deviations and the large profits available from using the overnight spot rate are unexplained phenomena.

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