Journal of Computational Finance

Risk.net

An investigation of cheapest-to-deliver on Treasury bond futures contracts

Simon Benninga, Zvi Wiener

ABSTRACT

It is commonly believed that the cheapest-to-deliver bond on a Treasury bond futures contract has extremal duration. The authors show that this is not always true. There is an easy rule for cheapest-to-deliver bonds which involves choosing a combination of extremal coupons and maturities. This rule is derived for a flat term structure and its extension to a nonflat term structure is given.

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