Fed funds futures variance futures

We develop a novel contract design, the fed funds futures (FFF) variance futures, which reflects the expected realized basis pointvariance of an underlying FFF rate. The valuation of short-term FFF variance futures is completely model-independent in a general setting that includes the cases where the underlying FFF rate exhibits jumps and where the realized varianceis computed by sampling the FFF rate discretely. The valuation of longer-term FFF variance futures is subject to an approximation errorwhich we quantify and show is negligible. We also provide an illustrative example of the practical valuation and use of the FFF variance futures contract.