The aim of this paper is to investigate the theoretical and empirical pricing of the Chicago Board
of Trade (CBOT) Treasury-bond futures. The di¢ culty to price it arises from its multiple inter-
dependent embedded delivery options, which can be exercised at various times and dates during the
delivery month. We consider a continuous-time model with a continuous underlying factor (the interest
rate), moving according to a Markov di¤usion process consistent with the no-arbitrage principle. We
propose a numerical pricing model that can handle all the delivery rules embedded in the CBOT
T-bond futures, interpreted here as an American-style interest-rate derivative. Our pricing procedure
combines dynamic programming, …nite-elements approximation, analytical integration and …xed-point
evaluation. Numerical illustrations, provided under the Vasicek (1977) and Cox-Ingesoll-Ross (1985)
models, show that the interaction between the quality and timing options in a stochastic environment
makes the delivery strategies complex, and not easy to characterize. We also carry out an empirical
investigation of the market in order to verify whether short traders in futures contracts are exercising
the strategic delivery options skillfully and optimally or if they are under-utilizing them. To do so,
we price the futures contract under the Hull-White (1990) model. Empirical results show that futures
prices are generally undervalued, which means that the market overvalues the embedded delivery
options. According to our …ndings, observed futures prices are on average 2% lower than theoretical
futures prices over the 1990-2008 time period, priced two months prior to the …rst day of delivery
months.
JEL Classi…cation: C61; C63; G12; G13.
Mathematics Subject Classi…cation (2000): 90C39; 49M15; 65D05.
Keywords: Futures; asset pricing; dynamic programming; cheapest-to-deliver; delivery options;
interest-rate models.
2
학술대회/행사
학술대회안내
[2008년 제 4차] Pricing the CBOT T-Bonds Futures
작성자 : 관리자
조회수 : 795
게시일 :
2008-12-11