The Futures Bond Basis, Second Edition

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 ...