Thanks for this. I don't have the book and am trying to put something together in the next 24 hrs (I'm an ex-trader turned financial writer). Can you point me to more accessible stuff (or web excerpts)?

<t>Thank you again for the input.My conclusions (please correct if wrong)."Convexity bias" refers to two seperate, unconnected, issues; the linear/non-linear mismatch and the correlation between the forward rate and the margin funding rate (which you call the "covariance effect").The linear/non-line...

<t>I'm incredibly grateful for your reply and I apologise if I have misunderstood. Are there in fact two adjustments? One for the linear/non-linear mismatch, and then one (the 'textbook adjustment'(?)) for the correlation between interest rate changes and margining? Or is it that I don't really unde...

<t>This is (I think) a really basic problem, but I'd be grateful if someone could explain it to me Ladybird book fashion, or point me at a more appropriate (simpler) forum .I've always thought of the convexity bias in Eurodollar futures as being related to the fact that EDs are effectively linear; n...

<t>I am getting old.Alas it is many years since I've been in a trading room but I still have to help people with Finance. I'm currently teaching US MBS. I recall that there was no consensus around OAS models as recently as five years ago. The differences revolved around the two components?The pre-pa...

<t>Possibly I am assuming two things where only one exists, but there seem to be two factors involved with the standard convexity adjustments between futures and rates. Since I know nothing about Girsanov's Theorem or Martingale measures, much of the literature on the web is not that helpful to me. ...

It would appear I was making a really basic mistake - I have been calculating discounted margin incorrectly for about 20 years. I apologise for wasting your time.

<t>Please don't laugh at the silliness of this, since I suspect I am asking brain surgeons to tell me what the shape of a brain is. I was looking at the value of a deep-discount FRN. I have assumed that the usual discounted margin calculation has a drawback as regards principal investment, irrespect...

<t>I had also worked out that the PV of the dividend is 0.99016, but that was simply by taking the future value of one (0,25 x 100 x 0.04!) and discounting that using simple interest. No exponential elements were involved, and I can't actually get your equation above to work. (Shouldn't it be ((S*(e...

<t>I was trying to go the other way around - calculating the forward price given a dividend yield. I wanted to check it using the exp(r-d)t approach, and assumed I could simply convert the nominal yield to a continuous basis (as I can using Fx forwards). I guess the important thing in terms of this ...

<t>I'm confused. If I am told (by somebody) that the dividend yield is actually 4% on a simple market basis, are you saying that you cannot simply convert this to a continuously compounded equivalent of 3.994 and calculate the forward price using the exponential equation? This is different from the ...

Dont think this helps me - as mentioned above I adjusted the two yields to the continuously companion equivalents - 7.921 & 3.994. Using exp(r-d)t I get a fwd of 100.986. But using simple interest of 8 and 4 I get 101.

<t>Going through forward pricing with people who are not natural users of the exponential function (like myself to be honest). The easiest way of explaining it is through no arbitrage and pointing out that no riskless profits can (should) be made. So I used a simple example of a $100 asset with thre...

<t>Depends I suspect on your model, but most simplistic models assume some form of continuous trading while the market is open. When it isn't, it simply doesn't exist and there is an assumption of zero change. Like many option assumptions, it is wrong, but may be taken into account by different mark...

MISTAKE