Pascal spreading of short-term interest rate contracts

Abstract

The author thanks Colin Negrych and Ken Garbade for comments at an earlier stage. Each are absolved from any remaining errors.

Profitability of Trading Rules in Futures Markets

“…Similarly, interesting price change behaviour has been reported in the spread between interest rate futures of different expiries, referred to as 'Calendar Spreads'. Merrick (2000) examined the interest rate futures traded on the London International Financial Futures Exchange (LIFFE) between 1989 and 1998. He found that deviations existed between the high-order polynomial approximation representation of the term structure of interest rates and those rates observed on the LIFFE's short-term interest rate contract.…”

“…Given the substantial literature in the area of trading rule performance, see inter alia Dale and Workman (1981), Peterson and Leuthold (1982), Lukac (1985), Lukac et al (1988), Simon (1999) and Merrick (2000), the growth of speculative trading activity means that it is important to empirically re-evaluate the performance of such models periodically to determine whether existing theories of futures market equilibrium remain valid. With this in mind, this paper presents two well-known momentum type models, namely the Dual Moving Average Crossover rule and the Channel Breakout Rule, across a broad range of markets and asset classes, namely futures contracts over equities (S&P 500), bonds (US T-Bonds), currencies (British Pound), soft commodities (Corn) and precious metals (COMEX Gold).…”