In section 7.2.2 which is for Pricing Euro Dollor Future the corresponding LOS is (g) which is says “Describe the difficulties in pricing Euro Dollor Futures and creating a pure arbitrage opportunity”.
Going by the short content of section 7.2.2, all I am gettng is that before expiration, the m-day Libor rate is not known so in overall equation through which we calculate the value of position an instant before expiration, the term Lm(h) can’t be offset which is not the case with T-Bill futures because T-Bill are discount instrument.
I am not fully getting what CFA is trying to say when they say “There is no way for the Lh(m) terms to offset.”. Are they trying to say that Lh(m) is unknown before h? Isn’t the case with almost all asset that their spot price is only known when time comes.
Can someone shed some light on what is the exact issue with pricing the futures on euro dollors? A simple example of pricing euro dollor vis a vis T-Bill showing issues with euro dollor and no issues with T-Bill would be really helpful.