Pricing and Valuation of Futures Contracts

Question 1

What does a “Futures Contract Basis Point Value” represent?

Answer 1

The change in price of a futures contract given a 1bps change in yield.

Question 2

What is “Convexity Bias’?

Answer 2

Refers to the difference in price changes for a given change in yield between interest rate futures and interest rate forward contracts.

That is, interest rate forwards exhibit a non-linear or convex relationship between price and yield, while the price-yield relationship is linear for interest-rate futures.