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I just got into CME Eurodollar futures and I discovered that the notional value for that contract is considered to be 1 million \$.

I thought wrongly that it was 250 000 \$. I saw some explanations (3 months and not 12 months) but I'm not convinced since I don't know any precise definition of the notional for a future contract and I didn't find one. Do you know one that matches that result ?

Thank you !

Geoffroy Montané
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    The notional value of ED contracts is a confusing and ill-defined thing. Quarterly interest on 1,000,000 is the same as multiplying the annual interest rate by 250,000. So there are two ways of coming up with the same number (the cash flow that the market is trying to price). For what purpose do you need to know the "notional value"? – nbbo2 Dec 19 '20 at 15:28
  • Thank you for your answer. It's not really that I need it but I was curious about that statement that I read in some books. In general, I find ED quite confusing (difficult to price, no underlying asset easy to replicate...) – Geoffroy Montané Dec 19 '20 at 15:30
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    The notional is $1M, but since the underlying is a 3 month deposit, the day count used is 0.25 it might look like the notional is 250k when you calculate interest. – Pontus Hultkrantz Dec 20 '20 at 10:30

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There's no formal definition as far as I know, although that doesn't stop people from trying to make one. Notional is a difficult concept to pin down, but in some cases it can make sense to make a arbitrary definition in a specifc context. For example I worked once with a risk manager who wanted to know roughly 'how long' the portfolio was at the short end. He wanted to aggregate that with the other non-futures positions so we made an equivalent 'notional' measure. Frankly, delta was a better measure.

ThatDataGuy
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