Stan Jonas ''dutch book'' in Aug 7 2007 FT

pyhron · Post by **pyhron** » Thu Apr 12, 2007 2:26 am

Mea Culpa... I hadn't realized that someone else had done the math.. actually arithmetic..

Case 3 is easy enough it seems.. if the FED EASEs 25 basis points.. the May Fed Funds rally by definition to 97.24.. and the puts expire worthless.. doesn't really matter where the futures are.. you lose your debit on the puts.. and just keep the 25 tick profit on the Funds long...

As I see you've worked out..

But else where in the presentation its simple to work out how the mapping from funds to Euros gets done..

A euro is nothing but 3 FED FUNDS futures strung together

so if you know that the FED is going to tighten in May.. the value of the June Euro is the may tightening+the unconditonal probabilities of a tightening or ease in say June..July.. Augy... as these are what the FEDFunds futures and options "are' its ease to map one set of unconditional probabiities to the other..

Here of course the situation was some what different.. and the arb if there was one must have been that the May options on the Euro's were pricing a different "probability" of the FED moving in May than the Fed Funds futures

Looking at the table.. anyone who trades fixed income can see that the May Funds were pricing about 20% probability of a 50 basis point tighteing.. (lose 19 verus make 4) but obviously the Euro' puts werent it would seem that if the FED go 50 basis points and that was not fully priced that 3 month money would be at least 25 basis points higher in yield.. if not more.. if the market thought that there was another tightening following the first 50 basis point ease...

So looking at this trade it looks close to a straddle for free...

pyhron · Post by **pyhron** » Thu Apr 12, 2007 2:43 am

Maltese:

Sorry but I just came upon this and the presentation mentioned...Your point on spot rates versus forwards is of course dead on..

But.. if one can extract FED fund probabilties from Euro's.. i.e the sequence of FED or ECB policy moves priced into the marketplace.. you have two sets of forward markets.. the Treasuries are nothing else but the sum of expectations existing today...

It looks like at least on person does the same thing.. The Fed.. page 66 has a FED paper describing how they internally model the market.. the title is "Reading the Mind of the Market"....or something...

Its the same thing as in the presentation they model rates out to 10 years exactly as the presentation.. in fact it looks like they use the same graphics.. i

Don't know if your a professional.. but in the last year and half.. mos t the academic work.. has followed this path.. see Rudebush, Monika Piazzi (I think)...and all the recent Bernanke/Miskin.. Poole stuff on expectations as the driver of interest rates..

Michael Woodford's book is a good intro if you have the math to follow the DSGE stuff that permeats.. monetary theory these days..

But the simplest analogy is that of Ben Bernanke.. when talking bout deflation he commented that if the FED wanted the Five Year note to trade at say 1.00% they could in principle make it happen immediately..

All they would have to do is guarantee: that you could borrow FED Funds at say 1.00 of the life of the 5 year.. (write you a put)

You don't have to be BillGross to figure out that the Five year note will at a minium trade at 1.00 immediately.. if not substantially lower.. as it will be risk free to buy the 5 year and finance it positively.. with the Free option that rates can be even lower than 1.00 in the future..

uranasss · Post by **uranasss** » Tue Apr 17, 2007 7:56 pm

Deutsche has a relatively new product called TARGETs, a basis-free monetary policy contract. You simply get paid out on the diff between the strike and the realised target rate. We recently tried them out and they seemed to fit the bill for all our binary C/B action needs. Wink

Disclaimer: I am not currently, nor have I in the past, been employed DB.

IngiOrn · Post by **IngiOrn** » Tue Sep 07, 2010 9:46 am

Does anyone still have a copy available of any of those presentations?

Cheng · Post by **Cheng** » Tue Sep 07, 2010 2:22 pm

Sure. But my 2006 disclaimer still applies.

IngiOrn · Post by **IngiOrn** » Tue Sep 07, 2010 2:42 pm

yes of course, can you please email it to at ingiornpeturssongooglemailcom

Thanks

Ingi

Maltese · Post by **Maltese** » Mon Aug 01, 2011 6:56 pm

I know this is old, however, Stan Jonas has been sending out trading recommendations on bloomberg regarding trades in the eurodollar space. Can anybody shed some light on how he is doing and if his fund (called Axiom Managment according to his bloomberg bio) has mady any money?