A key difference between a futures contract and a forward contract is daily settlement: the instrument is daily marked-to-market. If the value of the futures increases, this creates excess margin cash; if value declines, there will be a margin call (when the maintenance level is reached). Therefore, a Eurodollar futures contract has more volatility than a similar forward rate agreement (FRA). This implies a slightly higher rate.
Questions about Convexity adjustment for Eurodollar futures
Want more info about Convexity adjustment for Eurodollar futures?
Get free advice from education experts and Noodle community members.