Pricing Eurodollar/Euribor Futures Using Preference-Free Multifactor Affine and Quadratic Models

Posted: 7 May 2007 Last revised: 15 Aug 2019

See all articles by Natalia Beliaeva

Natalia Beliaeva

Suffolk University - Department of Finance

Sanjay K. Nawalkha

University of Massachusetts Amherst - Isenberg School of Management

Gloria M. Soto

University of Murcia - Faculty of Business and Economics

Date Written: May 1, 2007

Abstract

This paper derives analytical solutions for valuing Eurodollar/Euribor futures using multifactor affine and quadratic models. We use a preference-free framework independent of the market prices of risk. The preference-free "single-plus" models allow the short rate process to be time-homogeneous. The preference-free "double-plus" models allow the short rate process to be time-inhomogeneous, such that the model prices are consistent with initially observable bond prices. Our solutions allow arbitrary number of factors for the short rate and nest virtually all other solutions given in the literature. We also solve the convexity-bias in closed-form under various multifactor affine and quadratic models.

Keywords: Eurodollar futures, Euribor futures, Interest rate models, Term structure models, Affine, Quadratic, Convexity bias

JEL Classification: G11, G12, G13, G21, G22, G23

Suggested Citation

Beliaeva, Natalia and Nawalkha, Sanjay K. and Soto, Gloria M., Pricing Eurodollar/Euribor Futures Using Preference-Free Multifactor Affine and Quadratic Models (May 1, 2007). Available at SSRN: https://ssrn.com/abstract=984596

Natalia Beliaeva

Suffolk University - Department of Finance ( email )

8 Ashburton Place-Beacon Hill
Boston, MA 02108-2770
United States

Sanjay K. Nawalkha (Contact Author)

University of Massachusetts Amherst - Isenberg School of Management ( email )

Amherst, MA 01003-4910
United States
413-687-2561 (Phone)

Gloria M. Soto

University of Murcia - Faculty of Business and Economics ( email )

Spain

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