The European bond basis: an in-depth analysis for hedgers, speculators & arbitrageurs
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| Main Author: | |
|---|---|
| Format: | Book |
| Language: | English |
| Published: |
Chicago [u.a.]
Irwin
1997
|
| Subjects: | |
| Online Access: | Inhaltsverzeichnis |
| Physical Description: | XXXII, 445 S. graph. Darst. |
| ISBN: | 0786308524 |
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MARC
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Record in the Search Index
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| adam_text | CONTENTS List of Exhibits xv
Preface xxvii
Acknowledgments xxxi
Chapter 1
Bond Futures and the European Capital Markets, 1986 to 1996 1
1996: A SINGLE CAPITAL MARKET 2
Market Access 2
The Government Bond Markets 3
The Growth of the Exchanges: Futures Trading Volume 4
A SINGLE EUROPEAN CURRENCY? A DISSENTING VIEW 7
The European Monetary System 8
The Theory of Optimum Currency Areas 9
Meeting the Maastricht Criteria 11
Chapter 2
General Principles for Pricing Forwards and Futures 15
FORWARD DELIVERY PRICING 15
Accounting for Bond Coupon Income 16
Accounting for Financing Costs 16
The Basis of a Forward Delivery Contract 17
FUTURES VERSUS FORWARDS: THE DELIVERABLE BASKET 22
Why Futures Use a Deliverable Basket 22
The Rationale Behind Conversion Factors 24
Conversion Factors in Practice: The Short s Delivery Option 25
FUNDAMENTAL BASIS CALCULATIONS 26
The Gross Basis 27
Implied Repo Rate 29
Net Basis 32
Chapter 3
The Delivery Option and Futures Price Determination 39
THE PRINCIPLE OF ARBITRAGE FREE DELIVERY 40
Identifying the Arbitrage Free Futures Price 40
Maturity Bias and the Arbitrage Free Futures Price 43
vii
vMi The European Bond Basis
THE BASIS TRADE AS AN OPTION POSITION 44
Basis Trades without Consideration of Carry 44
Basis Profits from Yield Changes 47
THE NET BASIS PRICES THE DELIVERY OPTION 47
Prospective Futures Prices with Carry 48
Option Value and Futures Prices 49
Chapter 4 Bond Risk and Futures Contract Behavior 53
BOND DURATION MEASURES 55
Macaulay s Duration 55
Modified Duration 57
Price Value of a Basis Point (PV01) 59
CONVEXITY MEASURES 60
Calculating Convexity 62
Implementing Convexity 62
FUTURES CONTRACT DURATION MEASURES 65
Market Convention: Inferred PV01 65
Practical Assessment Using Futures Price Deconstruction 67
Statistical Measurement 71
CONVEXITY AND FUTURES CONTRACTS 74
When the Same Bond Is Cheapest to Deliver 75
Across a Change in the Cheapest to Deliver Bond at an Inflection 75
SUMMARY 77
Chapter 5
Spreading Futures Contracts 79
SINGLE COUNTRY YIELD CURVE SPREADS 80
Tracking the Yield Curve Spread 80
Creating Balanced Positions 82
Analysis of Results 84
CROSS MARKET BOND SPREADS 91
Benchmark Spreads 92
Creating the Position 93
Case Study 95
Case Study Performance Analysis 97
Performance Measurement Parameters 100
Impacts from Additional Exposures 104
Contents ix
THE CALENDAR SPREAD 115
The Influence of Carry on the Calendar Spread 117
The Noncarry Components of the Calendar Spread 124
Calendar Spread Volatility Analysis 131
Chapter 6
Measuring Pricing Efficiency of Futures Contracts 135
IMPLIED REPO RATE CONVERGENCE 136
PATTERNS IN IMPLIED FORWARD RATES 138
Measuring the Forward Rate Implied by Calendar Spreads 138
Comparing the Forward Rates 139
PRICE VOLATILITY ANALYSIS 141
SUMMARY 146
Chapter 7
Hedging Bonds with Bond Futures 149
FINDING THE IMPLICIT OPTION—IN THEORY 150
Offsetting Interest Rate Risks 150
The Delivery Option When Hedging the Cheapest to Deliver Bond 152
The Delivery Option When Hedging a Bond That Is Not
Cheapest to Deliver 157
THE DELIVERY OPTION IN PRACTICE 163
The Implicit Option When Hedging the Cheapest to Deliver Bond 165
Effective Futures PV01 Contrasted to Inferred Futures PV01 168
The Implicit Option When Hedging a Bond That Is Not
Cheapest to Deliver 171
THE COSTS OF HEDGING: PAYING FOR THE OPTION 175
Basis Components and Expected Hedged Asset Returns 175
Case Study: The Basis and the Delivery Option 180
Case Study: Measuring the Effect of the Basis 182
Case Study: Measuring the Impact of Yield Curve Changes 185
SUMMARY 187
Chapter 8
Managing Bond Portfolio Risk with Bond Futures 189
MEASURING PORTFOLIO RISK 190
Portfolio Exposure 190
Portfolio Basis Point Value 191
Portfolio Modified Duration 192
x The European Bond Basis
MEASURING PORTFOLIO RETURN 194
Portfolio Yield to Maturity 195
Portfolio Current Yield 196
Portfolio Holding Period Return 197
RISK TARGETING USING FUTURES 198
Identifying Target Exposure, PV01, and Modified Duration 200
Creating the Futures Overlay 202
FUTURES OVERLAYS AND PORTFOLIO RETURNS 203
Convexity Effects and Portfolio Values 204
Basis Convergence and the Returns of the Overlay Strategy 208
Deliverable Basket Curve Effects 213
Chapter 9
Global Bond Portfolios: Futures and Currency Risk 217
INTEREST RATE AND CURRENCY RISK IN GLOBAL PORTFOLIOS 217
Measuring Interest Rate and Currency Risks within Portfolios 218
Risk Management Approaches with Bottom Up Strategies 220
Top Down Risk Management Approaches 221
RISK MANAGEMENT USING BOND FUTURES 230
Targeting Currency/Interest Rate Risk Allocations 231
Modified Duration Contribution from a Futures Overlay 237
The Futures Overlay as a Cross Market Bond Spread 240
SUMMARY 241
Chapter 10
Synthetic Fixed Income Investing 243
SYNTHETIC BONDS 244
Creating the Interest Rate Risk Component 244
Creating the Income Component 247
Performance Analysis 251
OFFSHORE SYNTHETIC INVESTMENT 254
Currency Exposed, Hedged, or Neutral 256
Comparing Currrency Neutral Synthetics and Local Direct Investment 261
Chapter 11
Basis Trading Fundamentals 267
TRADING MECHANICS 271
The Rationale for Conversion Factor Weighting 271
Executing Basis Trades 274
Contents xi
Sources of Profit and Loss 277
Financing and the Repo Markets 282
STRATEGIES FOR CHEAPEST TO DELIVER BASIS TRADING 289
Implied Repo Rate Volatility 289
Implied Repo Channel Strategy 291
Break Even Forward Basis 292
Break Even Forward Implied Repo Rate 295
The Directional Component: Projecting the Inflection 298
Yield Volatility Component: Projecting Changes in the Inflection 308
STRATEGIES FOR NON CHEAPEST TO DELIVER BASIS TRADING 315
Conversion Factor Trading 315
Duration Weighted Basis Trading 320
THE END GAME DELIVERY STRATEGIES 323
Managing the Tall 324
Managing the Delivery 326
SUMMARY 327
Appendix A
German Government Bonds and Their Futures Markets 329
THE CASH MARKET FOR GERMAN GOVERNMENT SECURITIES 329
Traded Securities 329
The Breadth of the Cash Market 330
Issuance Process 330
Secondary Market Trading Practices 331
Clearance and Settlement 332
Financing Facilities 332
CALCULATIONS 333
Accrued Interest 333
Price and Yield Calculations 333
THE MARKET FOR GERMAN BOND FUTURES AT DEUTSCHE
TERMINBOERSE (DTB) THE LONDON INTERNATIONAL FINANCIAL
FUTURE EXCHANGE (LIFFE) 334
Contract Specifications 334
Delivery Process 335
Basis Trading Facilities 336
Margining and Customer Funds 336
Delivery Histories 336
Cheapest to Deliver Histories 340
Pricing and Volume Histories 344
xii The European Bond Basis
Appendix B
British Government Bonds (Gilts) and Their Futures Market 355
THE CASH MARKET FOR GILTS 355
Market Reforms 356
Issuance Process 357
Practices and Conventions 358
Clearance and Settlements 358
Financing Facilities 358
CALCULATIONS 359
Accrued Interest 359
Price and Yield Calculations 359
Ex Dividend Trading 359
THE MARKET FOR GILT FUTURES AT LIFFE 360
Contract Specifications 360
Delivery Process 360
Conversion Factor Formula 361
Trading Hours 361
Margins and Customer Funds 362
Basis Trading Facility 362
Delivery History 362
Cheapest to Deliver Bond Histories 364
Price and Volume Histories 368
Appendix C
Italian Government Bonds and Their Futures Market 379
THE CASH MARKET FOR ITALIAN GOVERNMENT SECURITIES 379
Primary Securities of the Cash Market 379
Outstanding Government Debt 380
Issuance Process 381
Secondary Market Practice and Conventions 382
Clearing and Settlement Procedures 382
Financing Facilities 382
CALCULATIONS 383
Accrued Interest 383
Price and Yield Calculations 384
THE MARKET FOR ITALIAN BOND (BTP)
FUTURES AT THE LONDON INTERNATIONAL
FINANCIAL FUTURES EXCHANGE (LIFFE) 385
Contents xffl
Contract Specifications 385
Delivery Process 386
Conversion Factor Formula 386
Trading Hours 387
Margins and Customer Funds 387
Basis Trading Facility 387
Delivery History 387
Cheapest to Deliver Bond Histories 389
Price and Volume Histories 393
Appendix D
French Government Bonds and Their Futures Markets 403
THE CASH MARKET FOR FRENCH GOVERNMENT SECURITIES 403
Primary Securities of the Cash Market 404
Outstanding Government Debt 404
Issuance Process 404
Secondary Market Practice and Conventions 405
Clearing and Settlement Procedures 405
Financing Facilities 405
CALCULATIONS 406
Accrued Interest 406
Price and Yield Calculations 406
THE MARKET FOR FRENCH BOND FUTURES AT MARCHE A TERME
INTERNATIONAL de FRANCE (MATIF) 407
Contract Specifications 407
Delivery Process 407
Conversion Factor Formulas 408
Trading System 408
Margins and Customer Funds 408
Basis Trading Facility 409
Delivery History 409
Price and Volume Histories 409
Appendix E
Spanish Government Bonds and Their Futures Market 421
THE CASH MARKET FOR SPANISH GOVERNMENT SECURITIES 421
Traded Securities 421
The Breadth of the Cash Market 422
xjv The European Bond Basis
Secondary Market Trading Activity 422
Issuance Process 423
Auction Settlement 424
Secondary Market Trading Practices 425
Transparency Facilities 425
Clearance and Settlement 426
Financing Facilities 426
CALCULATIONS 426
Accrued Interest 426
Price and Yield Calculations 427
THE MARKET FOR SPANISH BOND FUTURES AT MEFF
RENTAFUA (MEFF) 427
Contract Specifications 427
Delivery Process 428
Screen Trading System 429
Margining and Customer Funds 429
Delivery History 430
Contract Price and Volume Histories 430
INDEX 439
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| spelling | Plona, Christopher Verfasser aut The European bond basis an in-depth analysis for hedgers, speculators & arbitrageurs Christopher Plona Chicago [u.a.] Irwin 1997 XXXII, 445 S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier Bonds Europe Capital market Europe Festverzinsliches Wertpapier (DE-588)4121262-9 gnd rswk-swf Europa Europa (DE-588)4015701-5 gnd rswk-swf Europa (DE-588)4015701-5 g Festverzinsliches Wertpapier (DE-588)4121262-9 s DE-604 HBZ Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=007640161&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Plona, Christopher The European bond basis an in-depth analysis for hedgers, speculators & arbitrageurs Bonds Europe Capital market Europe Festverzinsliches Wertpapier (DE-588)4121262-9 gnd |
| subject_GND | (DE-588)4121262-9 (DE-588)4015701-5 |
| title | The European bond basis an in-depth analysis for hedgers, speculators & arbitrageurs |
| title_auth | The European bond basis an in-depth analysis for hedgers, speculators & arbitrageurs |
| title_exact_search | The European bond basis an in-depth analysis for hedgers, speculators & arbitrageurs |
| title_full | The European bond basis an in-depth analysis for hedgers, speculators & arbitrageurs Christopher Plona |
| title_fullStr | The European bond basis an in-depth analysis for hedgers, speculators & arbitrageurs Christopher Plona |
| title_full_unstemmed | The European bond basis an in-depth analysis for hedgers, speculators & arbitrageurs Christopher Plona |
| title_short | The European bond basis |
| title_sort | the european bond basis an in depth analysis for hedgers speculators arbitrageurs |
| title_sub | an in-depth analysis for hedgers, speculators & arbitrageurs |
| topic | Bonds Europe Capital market Europe Festverzinsliches Wertpapier (DE-588)4121262-9 gnd |
| topic_facet | Bonds Europe Capital market Europe Festverzinsliches Wertpapier Europa |
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