Pricing and quality option in Japanese government bond futures
An empirical study of the Hull - White model for pricing Treasury bond futures contracts with quality option is presented. Japanese long-term Government Bond (JGB) futures contracts are chosen, because unlike US Treasury bond futures contracts, which embed both the quality and timing options, the JGB contracts contain only the quality option. Interest rate model parameters are estimated using a simple regression technique and the yield curve is smoothed by B-spline functions with a correction for heteroscedasticity. By applying a discrete trinomial tree approach proposed by Hull and White, the quality option embedded in the JGB futures is then determined by the difference between the theoretical futures prices for contracts with and without allowing multiple deliverable grades. Without the addition of other timing options, the value of the pure quality option is less significant compared to those of other empirical studies. It is approximately 0.02 percentage points of par three months prior to delivery. In this study, it is demonstrated that the Hull - White model is simple and computationally efficient.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 9 (1999)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAFE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAFE20|
When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:9:y:1999:i:1:p:51-65. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.