An Empirical Study On The Pricing Of Chinese Treasury Bond Futures

As China restarts the trading of the Treasury bond future, many researchers return to do research on this topic, to follow this trend, this article tries to take cost-of-carry model to pricing the Treasury bond future.The cost-of-carry model has become one of the most widely used models in the world for its simplicity. However, as the absence of the data of China Treasury bond future market, few people can apply the model into domestic market research. In this article, we use this model to price the future, and find the result is pretty good. The model gives the same price trend as the market goes, and the difference between the two prices locates in no more than 1%. We think the reason may be that most of the market participants use this model to price the future.In addition, we talk about the two important concepts of Treasury bond future: the cheapest-to-deliver bond (CTD) and the quality option theoretically and empirically. Three methods are used to choose the cheapest-to-deliver bond, and compare the merits of these methods. We think that the net basis method and the implied repo rate method have the same result, and they both are better than the "rule of thumb". We also take three methods to calculate the value of the quality option, and we find that the two assets conversion model has the best performance. Moreover, our research shows that the quality option has little affection on the price of the Treasury bond future.In the end of the article, we then use Granger causality test to analyze the relationship between the future market price and the spot market price. We think that the two markets have no guide to each other. This means that the pricing ability of the Treasury bond future is not reflected in our market. We think that this may because the investor structure is not reasonable. Commercial banks and insurance agencies, as the main holders of the Treasury bonds, are excluded from the market, which reduce the market liquidity, leading to the low efficiency of the market.