I am getting confused about the derivatives topic a little bit.
Eurodollar Future (ED.F) is today 99.185 which means the 3months LIBOR (which is the underlying asset) is 0.815% (annualized rate ).But actually 3M USD LIBOR is 0.6126% at the same date.
I do not understand why is this big different between underlying future asset and the actual LIBOR which supposed to be the same if I am not considered any other cost like transaction cost etc. .Somebody can explain to me.
3m LIBOR today is the rate you pay to borrow USD for 3m i.e. from TODAY to TODAY+3m.
The ED future settles into (cash difference paid) the 3m LIBOR rate prevailing on the date the future expires. From your prices I think you must be referring to the settlement price of the Dec-16 future on friday, (i don’t know why you are looking at the Dec, you should be able to see the Mar16 from wherever you are looking). So that is what the market expects* the 3m LIBOR rate to be on 19/12/2016.
*This is not a predictor of future interest rates, as you will find out by reading more of the level 2 syllabus. You will also see there’s the convexity bias vs FRAs but only 1yr out and with low rates this is hardly noticable.