April 28th, 2011, 4:59 am
I do understand the following: A Forward rate is an expectation of the future sport rate under the forward measure.I do not understand what it means that a Futures, because it is settled every day, is a "simple" expectation of a spot rate in the future.I can see the reasoning in the second statement but if implied rates from Futures are generally too high due to convexity considerations, why would they be a true (if "simple" means real world expectation); they would be, at times, ridiculously high?Thanks,Alk