Lenny D. answered • 05/08/19
Financial Professional with many years of Wall Street Experience
What is typically done use to use eurodollar Future strips. The June Future gives you a lock on on a three month deposit starting in June. Sep Future gives you a 3 month rate starting in Sep. IIf Jun is trading At 95 and Sep Is Trading at 94.9 then we have jun 3 month yield is 5% and Sep is 5.1 % if it is 45 day until the jun nad the Cash rate to Jun is 4.9% We have an effective locked rate of ((1 +.4.9%/45/360)((1+5%/90/360)(1+5.1%*90/360))^(360/225)-1 = 5.118% as a annualized compound yield. the 225 day discount factor is therefore d = ( 1 + 5.118%) ^ (225/360)We can do this for any maturity. and create a zero coupon yield curve. That is how it is done in practice.
