Stock Price Index Futures

• Cash settlement rather than physical delivery

• Settlement is 250*(Indext-Futurest-1)
• Fair value:
F = P + P(r - y )
F = fair value futures price
P = Stock price index
r = financing cost (interest rate)
y = dividend yield
 Federal Funds Futures Market
• Created by CBOT 1988.
• Settlement price is 100 minus annualized federal funds rate,
averaged over contract month.
• Show timing of expected actions of Federal Open Market
Committee.
• One-month-ahead forecast errors typically in the ten to
twenty basis point range.