Embedded theoretical quality option pricing in Treasury bond futures—Starting from the definition deviation of conversion factor

Author:

Yang Xiaofeng1ORCID,Zhao Ling1ORCID

Affiliation:

1. School of Economics Hangzhou Normal University Hangzhou China

Abstract

AbstractUnlike ordinary futures, Treasury bond futures are a kind of complex financial derivatives with multiple Treasury bonds as the underlying, which can be settled on multiple dates. China's Treasury bond futures contract embeds a quality option, rolling timing option, and month end timing option, and these options restrict each other, making the pricing of Treasury bond futures extremely difficult. Quality option plays a dominant role in these three options. This article creatively divides quality options into theoretical quality option caused by the definition deviation of conversion factor and disturbance quality option caused by the market factors except for interest rate. Using the bond valuation method based on the yield to maturity curve, this article puts forward the embedded theoretical quality option and China's Treasury bond futures pricing models. For the empirical test, the dataset covers a 10‐year Treasury bond futures contract in 151 working days. The results show that the relative error between our model and the actual closing price of the Treasury bond futures is small compared with the cost of carry model, which excludes any embedded options. This research constructs a practical and straightforward pricing model of embedded theoretical quality option.

Publisher

Wiley

Reference39 articles.

1. On the future contract quality option: a new look

2. Interest rate theory

3. Carr P.(1988).Valuing bond futures and the quality option. Working paper University of California at Los Angeles.

4. Carr P. &Chen R.(1996).Valuing bond futures and the quality option. Working paper Rutgers University.

5. An Empirical Comparison of Alternative Models of the Short-Term Interest Rate

同舟云学术

1.学者识别学者识别

2.学术分析学术分析

3.人才评估人才评估

"同舟云学术"是以全球学者为主线,采集、加工和组织学术论文而形成的新型学术文献查询和分析系统,可以对全球学者进行文献检索和人才价值评估。用户可以通过关注某些学科领域的顶尖人物而持续追踪该领域的学科进展和研究前沿。经过近期的数据扩容,当前同舟云学术共收录了国内外主流学术期刊6万余种,收集的期刊论文及会议论文总量共计约1.5亿篇,并以每天添加12000余篇中外论文的速度递增。我们也可以为用户提供个性化、定制化的学者数据。欢迎来电咨询!咨询电话:010-8811{复制后删除}0370

www.globalauthorid.com

TOP

Copyright © 2019-2024 北京同舟云网络信息技术有限公司
京公网安备11010802033243号  京ICP备18003416号-3