Title: Seasonality in one-month LIBOR derivatives
Description: "We examine the markets for one-month LIBOR futures contracts and options on those futures for a year-end price effect consistent with the previously identified year-end rate increase in one-month LIBOR.  The cash market rate increase passes through to derivative prices, which allows the derivatives to properly hedge year-end interest rate risk.  However, while the year-end effect appears in the derivative contract, these derivative contracts provide biased forecasts of both future interest rates and their volatility.  The turn-of-the-year effect appears to contribute to the bias in the futures contract but not in the options contract.  The information in the derivatives almost always subsumes simple benchmark forecasts"--Federal Reserve Bank of St. Louis web site.
Subjects: Derivative securities, Financial futures, Options (Finance)