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Implied volatility asymmetries in treasury bond futures options

โœ Scribed by Simon, David P.


Publisher
John Wiley and Sons
Year
1997
Tongue
English
Weight
187 KB
Volume
17
Category
Article
ISSN
0270-7314

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๐Ÿ“œ SIMILAR VOLUMES


Treasury bond futures: Valuing the deliv
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wning a security with a guaranteed future sale price and date is (almost) 0 equivalent to a short-term investment extending to the sale date. Yet, in the Treasury bond futures market the prices seem too low to provide a fair rate of return to those who short T-bond futures. That is, the short term i

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ptions on financial futures are relatively new financial instruments, although 0 options on commodities have been in existence since the Nineteenth Century. 'See Johnson (1982a) for a chronology of the historical developments in commodity option trading. Trading in options on nonfarm futures contrac

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Although the interest rate needs to be forecast, the study by Plato (1985) and others have shown that the interest rate forecast has little impact on the option premium. Therefore, the observed Treasury Bill interest rate is used as the parameter in this study.

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I am thankful to David Bates and Doug Foster. Comments from an anonymous referee and from Mark Powers are gratefully acknowledged.

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his study provides an ex ante and expost test of market efficiency for the T options on Treasury bond futures contracts traded on the Chicago Board of Trade. All option and future contract price changes are examined from market inception, in October 1982, through the middle of June 1983 for violatio

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n a recent article, Alex Kane and Alan Marcus (1984) examine the implications I of delivery alternatives available to a short-side trader in the Chicago Board of Trade (CBT) Treasury bond futures contract. They conclude that the associated "conversion factor risk" significantly reduces the equilibri