An Empirical Analysis Of Futures Pricing In China 's 5 - Year Treasury

The simulation trading of China’s 5-year treasury bond futures has been launched since February 13,2012. This new practice borrows many ideas from the practice and experience of the U.S. mature market. The biggest difference from the pilot period 17 years ago is that the contract target switchs to a virtual standard bond. As China’s interest rate market continues to advance, treasury bond futures will be launched in the near future. This thesis mainly studys the pricing of China’s 5-year treasury bond futures from the perspective of investors. It can help investors to arbitrage and hedge in the real trading of treasury bond futures, so it has important practical significance. This paper can be divided into four parts. After analysis of China’s 5-year T-bond futures contracts, we compare them with the U.S. treasury bond futures contracts to deeply explore the related factors for pricing. Then we analyze the key elements of the pricing of T-bond futures:conversion factor, the cheapest-to-deliver bonds and delivery options. On the basis of cost of carry model, we take characteristics of the T-bond futures into consideration and derive the pricing model of T-bond futures. Then we choose TF1212 contract for empirical analysis. We calculate the theoretical prices of T-bond futures and find that they are almost in accordance with futures prices. As for the fluctuation of futures prices, we find that the arbitrage profits are relatively large, which indicates that futures prices in some period deviates from the theoretical price greatly and there exist arbitrage opportunities. Finally we measure the effectiveness of hedging and find that treasury bond futures can hedge 75% of the risk of the cheapest-to-deliver bond, which suggests that futures prices are consistent with the theoretical prices.