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The Eurodollar Futures and Options Handbook by Galen Burghardt

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CHAPTER 5Hedging with Eurodollar Futures

Hedging and replicating are two sides of the same coin. You may have this sense already, but you will find in this chapter that you can use a Eurodollar futures contract to convert a floating rate asset (or liability) into the equivalent of a fixed rate asset (or liability). Or you can convert a fixed rate asset into a floating rate asset.

In the one case—when you are converting a floating rate asset into a fixed rate asset—what you are really doing is hedging a forward cash flow. That is, you are fixing the amount of cash that will show up on some future date. Whether you think of this as cash flow hedging or as replicating future or forward cash flows is perfectly fine as long as your objective is clear. ...

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