Pricing stirs

[legged]

Can someone please provide me with the basics of pricing STIRS . I ahve been reading Burghardt & Aiken books but I am trying to work it out .

I ahev Reuters access and I am wondering how you compare the FRA to the futures as I understand it to look for arb opportunities . Ie 3* 6 Fra with your corresponding futures contract . I am using the offer price as a reference for the 100 minus for a fair price .
I would assume that there is some way that this can be done in my Reuters .

Thanks

 

[Martinghoul]

Firstly, there are no arb opportunities. Secondly, FRA vs futures is all about convexity adjustment, calculating which is not an exact science (i.e. it's very model- and input-dependent).

 

[legged]

Firstly, there are no arb opportunities. Secondly, FRA vs futures is all about convexity adjustment, calculating which is not an exact science (i.e. it's very model- and input-dependent).

Ok so how do you determine what is Cheap / expensive

Cheers

 

[Martinghoul]

Ok so how do you determine what is Cheap / expensive

Cheers

Your view determines what's cheap and what's expensive. You can formulate this view based on past history (based on statistical techniques or, gasp, technical analysis) or based on your specific forecasts for interest rates.

 

[arabianights]

I would assume that there is some way that this can be done in my Reuters .

Yup, just need to know what you're doing.

Easiest way: Make a new frame somewhere. Then go to Insert>>Insert Object>>Reuters>>Reuters Models>>FX&MM>>Analyse>>FRA Arbitrage.

You're welcome

(Although as Martin says you won't find any useful arbs. The STIRS lead the FRAs, and the latter have wider spreads. If you do find an arb, it isn't one )