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Terms Structure of Interest Rates and Implicit Options: The Case of Japanese Bond Futures

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  • Shang‐Wu Yu

Abstract

The quality option for Japanese Government Bond Futures contracts is analysed using a term structure approach based upon a two‐factor Heath, Jarrow and Morton (1990b) model. The option value is found to be 0.12%–0.2% of par three months prior to delivery. Also, analysis of variance confirms that the quality option has a negative theta.

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  • Shang‐Wu Yu, 1997. "Terms Structure of Interest Rates and Implicit Options: The Case of Japanese Bond Futures," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(5), pages 593-614, June.
    • Handle: RePEc:bla:jbfnac:v:24:y:1997:i:5:p:593-614
    DOI: 10.1111/1468-5957.00123
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    Cited by:

    1. Balbás, Alejandro & Laborda Herrero, Ricardo, 2017. "Interest Rate Future Quality Options and Negative Interest Rates," INDEM - Working Paper Business Economic Series 24859, Instituto para el Desarrollo Empresarial (INDEM).
    2. Francois-Éric Racicot & Raymond Théoret, 2006. "Les modèles HJM et LMM revisités," RePAd Working Paper Series UQO-DSA-wp042006, Département des sciences administratives, UQO.
    3. Alejandro Balbas & Susana Reichardt, 2010. "On the future contract quality option: a new look," Applied Financial Economics, Taylor & Francis Journals, vol. 20(15), pages 1217-1229.

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