Goal
Position for, or hedge against large movements in rates which could create meaningful changes in DV01
Benefits of Eris
Eris Swap Futures are convex instruments, meaning the DV01 will change as rates rise or fall. Eurodollar futures have a constant DV01 that does not change
- By hedging cash instruments or other securities that have convexity with Eris swap futures, traders may capture some of the DV01 movement in the underlying
- Alternatively, some traders may wish to take a view on convexity by trading Eris against a strip or bundle of Eurodollars
- Futures vs futures margin offsets between Eris and Eurodollars make this a capital efficient trade
Examples
Long convexity - buy 4y Eris contract, sell 4y Eurodollar strip. Short convexity - sell 3y Eris contract, buy 3y Eurodollar strip
