A Generalized Error Distribution‐Copula Framework for Pricing Chinese Treasury Bond Futures With Embedded Options

This study investigates the pricing of complex embedded options—quality, rolling timing, and month‐end timing options—in China's Treasury bond futures market. We develop an innovative pricing model that integrates the generalized error distribution (GED) and Copula functions, specifically designed to capture the unique dependencies arising from institutional coordination. The framework models “valuation deviations”—discrepancies between actual closing prices and ChinaBond valuations—using GED marginals, while the Student's t‐Copula explicitly captures symmetric heavy‐tailed dependence patterns induced by coordinated institutional behavior. Empirical analysis demonstrates that the model achieves superior pricing accuracy compared to traditional approaches by effectively capturing policy‐shaped joint distribution characteristics. Furthermore, we introduce a policy adjustment term to account for systematic mispricing during periods of strong policy guidance, further enhancing the model's robustness. This research provides a reliable valuation benchmark tailored to constrained market structures and advances pricing theory for derivatives markets influenced by institutional and policy factors.