Risk-Based Overnight-Linked Futures Design

Abstract

The importance of overnight rate benchmarks has been increasing in the last years and is expected to increase further in the coming years. They could take over the IBOR-like benchmarks as the most important interest rate benchmarks. In this note we propose a new design for an overnight-linked futures. The design borrows on a swap futures design previously proposed by the author. The proposed design creates a potential unified approach to many interest rate futures and contributes to a common language between OTC and ETD markets. The design also reduces some of the drawbacks in existing futures.