Study On Arbitrage Strategies Of Program Trading In China’s Treasury Bond Futures Based On High-frequency Data

Arbitrage Strategy is one of the basic trading strategies of Treasury bond futuresmarket. On the one hand, it makes futures price reflect the trend of spot market morereasonably; on the other hand, it helps to increase flexibility of China’s Treasury bondmarket. Program trading has been widely used in international market as an importantway of trading. However, the development of China’s program trading is still in a lowlevel. On September6,2013, Treasury bond futures can be traded again on the marketand it provide a good opportunity for the development of the program trading. Themainly work of this paper is finding out whether the arbitrage opportunity exists whenusing program trading strategies in China’s Treasury bond future market.On the initial stage of Chinese Treasury bond futures, the market is to provideapparent arbitrage opportunities, however, in the practical operation of basis arbitragetrading of Treasury bond futures, transactions in Treasury bond spot market are notfrequent as expectation, making it difficult to take action when arbitrage opportunitiesarise. To solve this problem, in this paper, instead of Treasury bond spot we useTreasury bond ETF for Treasury bond future-spot arbitrage strategy research, based onthe COC model and one-price principle, based on the theoretical price of Treasury bondfutures, we can get the arbitrage cost curve and then illustrate the forward basisarbitrage opportunities on the basis of price trends and spreads expansion.In this paper, we study the program trading strategies from the arbitrage trading.For arbitrage, we focus on future-spot arbitrage. According to the theories of future-spotarbitrage and basis transaction, this paper analyzes and estimates the pricing mechanismand transaction costs for Treasury bond futures firstly. And consequently we design andadjust the feasible program trading strategy of Treasury bond ETF and futures arbitrage.Then we start basis transaction for the arbitrage strategies empirical study with theTreasury bond ETF, in order to find out the existence of arbitrage opportunities and agreat arbitrage space. Finally, it is evaluated the program trading arbitrage strategy andanalyzed the risk of arbitrage trading of Treasury bond futures.