Journal of Computational Finance
ISSN:
1460-1559 (print)
1755-2850 (online)
Editor-in-chief: Christoph Reisinger
An investigation of cheapest-to-deliver on Treasury bond futures contracts
Simon Benninga, Zvi Wiener
Abstract
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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