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 Started: December 23rd, 2012 (01:08 AM) by rcabri Views / Replies: 1,733 / 3 Last Reply: December 24th, 2012 (01:38 AM) Attachments: 1

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December 23rd, 2012, 04:24 AM   #3 (permalink)
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Posts: 9,524 since Mar 2010

 This post has been selected as an answer to the original posters question

rcabri
 Hi Somebody know where I can find the fair value buy premium and sell premium for the DAX future for example for the ES I am using these 2 good places Program Trading, Fair Value, Index Arbitrage Values - indexArb.com, Today's Program Trading Buy/Sell Levels Thanks rcabri

@rcabri: The DAX is a performance index, which means that dividends paid are reinvested at the end of the trading day. This simplifies the fair value calculation for the DAX future as you do not need to take into account the dividends paid.

The current front month contract expires on March 15. Starting from Friday, December 21 you would interpolate the 2-month and 3-month Euribor (Euribor rates - all information on Euribor)

2-month Euribor = 0.148%
3-month Euribor = 0.184%

and would get an interest rate of 0.180%

The index value for the DAX at the close of the Xetra session on last Friday was 7636.23. If you add the interest of 0.180% which is due until expiry, the fair value can be calculated as

fair value = 7636.23 (1 + 0.00180) = 7649.98 points

The FDAX settled at 7653.5 points, which would be 3.5 points above fair value.

This is certainly not a perfect calculation, but it gives you an idea

-> why the FDAX always trades at a premium to the DAX index (as long as interest rates are positive)
-> how you can make an estimation of the fair value

If you want to know an exact value, you would need

-> take into account the exact settlement times for the XETRA DAX and FDAX
-> the know the exact interest rates paid or received by arbitrageurs
-> take into account transaction costs

Last edited by Fat Tails; December 23rd, 2012 at 07:56 AM.
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