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Improving the Design of Treasury Bond Futures Contracts

Author

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  • Rodolfo Oviedo

    (Universidad Austral and McGill University)

Abstract

In bond futures contracts, the seller can choose which bond to deliver from a basket of eligible issues. To make the futures invoice price (FIP) for the different eligible bonds close to their corresponding spot market prices, the FIP is made a function not only of the last futures settlement price but also of the bond chosen for delivery. In this paper, I propose an alternative function that, using these same inputs, meets the aforesaid objective much better than the current conversion factor–based function, whose poor performance is well known.

Suggested Citation

  • Rodolfo Oviedo, 2006. "Improving the Design of Treasury Bond Futures Contracts," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1293-1316, May.
    • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:3:p:1293-1316
    DOI: 10.1086/500677
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    Cited by:

    1. Ben-Abdallah, Ramzi & Ben-Ameur, Hatem & Breton, Michèle, 2009. "An analysis of the true notional bond system applied to the CBOT T-bond futures," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 534-545, March.
    2. Michèle Breton & Ramzi Ben‐Abdallah, 2018. "Time is money: An empirical investigation of delivery behavior in the U.S. T‐Bond futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(1), pages 22-37, January.
    3. Ramzi Ben-Abdallah & Michèle Breton, 2017. "An ex-post analysis of the CME Group’s solution to the 5-year gap issue," Applied Economics, Taylor & Francis Journals, vol. 49(60), pages 5992-6002, December.

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