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

FDAXHunter · Post by **FDAXHunter** » Fri Aug 11, 2006 11:24 am

No they do not. You'd use EONIA swaps/swaptions which is the primary market for that exposure.

Baltazar · Post by **Baltazar** » Fri Aug 11, 2006 11:41 am

i founded this recent research paper that may help here

http://www.ecb.int/pub/pdf/scpwps/ecbwp657.pdf

LongTheta · Post by **LongTheta** » Fri Aug 11, 2006 11:41 am

[i]No they do not. You'd use EONIA swaps/swaptions which is the primary market for that exposure.[/i]

Would you still call this [i]"heartbreakingly simple"[/i]?

Johnny · Post by **Johnny** » Fri Aug 11, 2006 11:42 am

Thanks FDAX.

azura · Post by **azura** » Sun Aug 13, 2006 3:42 am

Cheng, could you please send me a copy of Jonas's presentation.

Thanks

Azura

pj · Post by pj » Sun Aug 13, 2006 9:06 am

Dear Azura,

1) It's hard to send anything to anybody not having one's address

2) BTW, have You read [url=/misc/forum%20Guidelines.aspx]this[/url]?

You have of course checked a flag "yes", but have You?

3) There is a (still working) link posted by Tabris. It's not precisely Cheng's copy, but it's quite Ok.

HTH

Cheng · Post by **Cheng** » Sun Aug 13, 2006 12:12 pm

Azura dood,

maybe next time after you contributed something to the phorum. Until then you can download Tabris' copy, it is slightly more comprehensive.

Regards

TonyC · Post by **TonyC** » Mon Aug 14, 2006 6:37 pm

one wonders how the introduction of traded binary options [making the probabilities that Jonas infers an explicitly traded/known quantity] will effect the frequency of opportunities to do the sorts of trades Jonas looks for

______________________________________________________

CBOT Successfully Launches Binary Options on Target Fed Funds Rate

For Immediate Release

Media Contact:

Craig Grabiner

(312) 341-5758

newscbotcom

CBOT SUCCESSFULLY LAUNCHES BINARY OPTIONS ON TARGET FEDERAL FUNDS RATE

CHICAGO, IL, July 12, 2006 – The Chicago Board of Trade (CBOT®) today announced the successful launch of its Binary options on the Target Federal Funds Rate. The new contract, developed at the request of CBOT market participants who desired target rate exposure, further diversifies the CBOT’s product offering at the short end of the yield curve.

The Target Federal Funds Rate is set by the United States Federal Reserve Bank, typically at its scheduled Federal Open Market Committee (FOMC) meetings.

CBOT Senior Vice President of Business Development Robert D. Ray said, “The CBOT’s new Binary options on the Target Federal Funds Rate were designed to provide new trading opportunities for participants such as dealer short-term funding desks, index arbitragers and hedge funds that seek to manage short-term interest rate exposure.”

Building on the growth of electronically-traded Financial options at the CBOT, Binary options on the Target Federal Funds Rate contracts will trade exclusively on the Exchange’s premier electronic trading platform. In June 2006, a record 2,066,032 Financial options were traded electronically at the CBOT – more than 93,000 contracts per day and more than three times greater than June 2005. Last month, nearly 20 percent of Financial options trades at the CBOT were executed electronically.

At expiration, binary options have two possible outcomes, and final contract settlement is either a fixed dollar amount or nothing at all. When the options expire, “in the money” options pay $1,000 to option holders, while those that are “at the money” or “out of the money” pay zero. Strike prices for the new CBOT Binary options correspond to the Target Federal Funds rate using a formula of 100-minus the actual Target rate. For example, a Target Federal Funds Rate of 5.25 percent would be reflected as 94.75. Expiring options are cash-settled and based upon the most recent Target Federal Funds Rate level established by the FOMC. The options will expire on the last day of a regularly-scheduled FOMC meeting.

Binary options on the Target Federal Funds Rate trade from 6:00 p.m. to 4:00 p.m. CT Sunday through Friday. Trading in expiring options ends at 2:00 CT on the final trading day. The Exchange has contracted with two firms to provide two sided markets for the new contract during daytime hours.

For more information, visit Binary Options.

CBOT Binary Options

Baltazar · Post by **Baltazar** » Mon Aug 21, 2006 4:49 pm

That will be intresting to look at that Tony, but i wonder about the use of these binaries.

According to what i understood, fed fund future options where already treated and traded as binaries, so will the open interest shift to binaries, stay on vanillia or be splitted?

I don't know much about binaries so it may have other implications that i don't see.

Aaron, did you find that article you mentioned? I'd really understand everything of it before closing the case and moving to something else (or secretly trade it mouahahahha, heum bref)

edit:

I got the idea of extracting the probability of fed moves trougth the fed fund (futures or options an futures if you want more detailled information)

I still don't get how he links these probas with the eurodollar:

1)Does he use a eurodollar model that is function of the expected fed rates (he links to a paper about that with a two factor model: rates and expeted path)?

2)Does he extracts the expected fed rates from the eurodollar future prices? (as FDAXHunter says we can do on a lemonade post)

pyhron · Post by **pyhron** » Thu Apr 12, 2007 1:56 am

Not that it matters much.. but I took a look at this page..

The options described are clearly options on Eurodollars futures..

It might be helpful if you realized that Eurodollar options trade in monthly expirations.. and quite clearly they are May options on the June eurodollar futures..

The table seems to be plainly label.. with the underlying defined as June Euro's..

Im not sure where the table you have above comes from maybe another 200 page presentation.. but..

that one shows cleary that if the FED goes 50 basis points.. the puts bout at 1 tick will go to 10 1/2 ticks.. or more of cours

I think the key that you missed is that given a 50 basis point move by the FED .. the June Euro which was trading at 96.53 was assumed to go to 95.26.. and thus the May 96.375 put would be worth around 11 1/2 ticks....

Of course the futures could have gone down more than assumed... but that would have just made the P&L even larger in every case..

By.. the way.. as a side note.. since there is a lot of Bayesian stuff in that presentation.. I wonder if you ever thought.. how likely is my observation likely to be right, or am I making a mistake?

Seems pretty obvious from the table that at 95.26 the 95.375 put will be worth around 11 1/2 ticks???

Because I'm anal.. i went back on my Bloomberg.. and checked.. and those were the actual prices back on Februay 28th..

And those May puts traded 100,000 times that day according to what I can make out..