Futures Bond Basis

Informationen zum Autor Dr Moorad Choudhry is Head of Treasury at KBC Financial Products in London. He is a Visiting Professor at the Department of Economics, London Metropolitan University, a Visiting Research Fellow at the ICMA Centre, University of Reading, a Senior Fellow at the Department of Mathematical Trading and Finance, Cass Business School, and a Fellow of the Securities and Investment Institute. Klappentext Basis trading is an important part of the government bond markets. In this book we review the essential elements of this type of trading. Written by a former government bond market maker and proprietary bond trader, the book features:* Basic concepts of forward pricing* The determinants of the basis* Repo financing* Hedging using bond futures* Trading the basis and an introduction to trading strategy* The concept of the cheapest-to-deliver bond* The net basis and the implied repo rateThe book is illustrated with in-depth practical examples and written in an accessible style. It will be of vital use to anyone with an interest or involvement in the government bond futures market. Zusammenfassung The 2nd edition of The Futures Bond Basis, is an updated and revised version of Professor Moorad Choudhry's succinct but in-depth look at the government bond futures contract basis. It includes essential background on contract specifications and the theory of the basis. Inhaltsverzeichnis Preface xiii About the author xix 1 Bond Futures Contracts 1 1.1 Introduction 2 1.1.1 Contract specifications 4 1.2 Futures pricing 11 1.2.1 Theoretical principle 12 1.2.2 Arbitrage-free futures pricing 16 1.3 Hedging using bond futures 21 1.3.1 Introduction 21 1.3.2 Hedging a bond portfolio 26 1.3.3 The margin process 31 1.A Conversion factor for the long gilt future 34 Selected bibliography 38 2 The Government Bond Basis 39 2.1 An introduction to forward pricing 41 2.1.1 Introduction 41 2.1.2 Illustrating the forward bond basis 43 2.2 Forwards and futures valuation 46 2.2.1 Introduction 46 2.2.2 Forwards 47 2.2.3 Futures 49 2.2.4 Forwards and futures 50 2.2.5 Relationship between forward and future price 52 2.2.6 The forward-spot parity 54 2.2.7 The basis and implied repo rate 57 2.3 The bond basis: basic concepts 60 2.3.1 Introduction 60 2.3.2 Futures contract specifications 62 2.3.3 The conversion factor 67 2.3.4 The bond basis 75 2.3.5 The net basis 78 2.3.6 The implied repo rate 82 2.4 Selecting the cheapest-to-deliver bond 92 2.5 Trading the basis 94 2.5.1 The basis position 94 2.6 Exercises 97 Selected bibliography 100 3 Basis Trading and the Implied Repo Rate 103 3.1 Analysing the basis 104 3.1.1 No-arbitrage futures price 105 3.1.2 Options embedded in bond futures contracts 110 3.2 Bond delivery factors 112 3.2.1 The cheapest-to-deliver 112 3.2.2 Selecting delivery time 114 3.2.3 Changes in CTD status 117 3.A General rules of the CTD bond 119 3.B A general model of the CTD bond 121 Selected bibliography 122 4 The Fundamentals of Basis Trading 123 4.1 Rates and spread history 124 4.1.1 Net basis history 124 4.1.2 The implied repo rate 128 4.2 Impact of the repo rate 129 4.2.1 The repo rate 130 4.2.2 Short bond position squeeze 134 4.3 Basis trading mechanics 136 4.3.1 Using the conversion factor 137 4.3.2 Trading profit and loss 138 4.4 Timing the basis trade using the IRR 139 4.4.1 The implied repo rate (again) 139 4.4.2 The IRR across futures contracts: Bloomberg illustration 143 Selected bibliography 145 A...

List of contents

Preface.
 
About the author.
 
1 BOND FUTURES CONTRACTS.
 
1.1 Introduction.
 
1.1.1 Contract specifications.
 
1.2 Futures pricing.
 
1.2.1 Theoretical principle.
 
1.2.2 Arbitrage-free futures pricing.
 
1.3 Hedging using bond futures.
 
1.3.1 Introduction.
 
1.3.2 Hedging a bond portfolio.
 
1.3.3 The margin process.
 
1.A Conversion factor for the long gilt future.
 
Selected bibliography.
 
2 THE GOVERNMENT BOND BASIS.
 
2.1 An introduction to forward pricing.
 
2.1.1 Introduction.
 
2.1.2 Illustrating the forward bond basis.
 
2.2 Forwards and futures valuation.
 
2.2.1 Introduction.
 
2.2.2 Forwards.
 
2.2.3 Futures.
 
2.2.4 Forwards and futures.
 
2.2.5 Relationship between forward and future price.
 
2.2.6 The forward-spot parity.
 
2.2.7 The basis and implied repo rate.
 
2.3 The bond basis: basic concepts.
 
2.3.1 Introduction.
 
2.3.2 Futures contract specifications.
 
2.3.3 The conversion factor.
 
2.3.4 The bond basis.
 
2.3.5 The net basis.
 
2.3.6 The implied repo rate.
 
2.4 Selecting the cheapest-to-deliver bond.
 
2.5 Trading the basis.
 
2.5.1 The basis position.
 
2.6 Exercises.
 
Selected bibliography.
 
3 BASIS TRADING AND THE IMPLIED REPO RATE.
 
3.1 Analysing the basis.
 
3.1.1 No-arbitrage futures price.
 
3.1.2 Options embedded in bond futures contracts.
 
3.2 Bond delivery factors.
 
3.2.1 The cheapest-to-deliver.
 
3.2.2 Selecting delivery time.
 
3.2.3 Changes in CTD status.
 
3.A General rules of the CTD bond.
 
3.B A general model of the CTD bond.
 
Selected bibliography.
 
4 THE FUNDAMENTALS OF BASIS TRADING.
 
4.1 Rates and spread history.
 
4.1.1 Net basis history.
 
4.1.2 The implied repo rate.
 
4.2 Impact of the repo rate.
 
4.2.1 The repo rate.
 
4.2.2 Short bond position squeeze.
 
4.3 Basis trading mechanics.
 
4.3.1 Using the conversion factor.
 
4.3.2 Trading profit and loss.
 
4.4 Timing the basis trade using the IRR.
 
4.4.1 The implied repo rate (again).
 
4.4.2 The IRR across futures contracts: Bloomberg illustration.
 
Selected bibliography.
 
Appendices.
 
A REPO FINANCING AND THE CONCEPT OF THE 'SPECIAL'.
 
A.1 Classic repo.
 
A.2 Basket repo: Illustration using Malaysian government bonds.
 
A.3 Special bonds in repo.
 
B RELATIVE VALUE ANALYSIS: BOND SPREADS.
 
B.1 Swap spread and Treasury spread.
 
B.2 Asset-swap spread.
 
B.3 Z-Spread.
 
B.4 Cash-CDS basis.
 
References.
 
C LIFFE LONG GILT DELIVERY HISTORY, MARCH 1996 TO JUNE 2001.
 
Glossary.
 
List of abbreviations.
 
Index.

Product details

• Authors: Choudhry, MC Choudhry, Moorad Choudhry, Moorad (Kbc Financial Products Uk Ltd. Choudhry, Choudhry Moorad
• Publisher: Wiley, John and Sons Ltd
• Languages: English
• Product format: Paperback / Softback
• Released: 24.03.2006
• EAN: 9780470025895
• ISBN: 978-0-470-02589-5
• No. of pages: 256
• Series: Securities and Investment Institute; Securities & Investment Instit; Securities and Investment Institute; Securities Institute
• Subjects: Social sciences, law, business > Business > Business administration; Termingeschäft, Allg. Finanz- u. Anlagewesen, Finance & Investments, Finanz- u. Anlagewesen