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Conference Proceedings (1997), 14e Conférence Internationale de Finance, Association Française de Finance (AFFI), pp. 683-710

Trading on Interest Rate Derivatives and the Cost of Marking-to-Market

LIOUI A., PONCET Patrice

Under stochastic interest rates, the price of the market-to-market futures contract written on a bond is shown to have a larger instantaneous drift than that of its forward counterpart althought it has the same instantaneous volatility. Also, the pure hedger is better off with futures if it is short in the underlying bond and the pure speculator is better off with futures.

LIOUI, A. and PONCET, P. (1997). Trading on Interest Rate Derivatives and the Cost of Marking-to-Market. In: 14e Conférence Internationale de Finance. Association Française de Finance (AFFI), pp. 683-710.