Research On Co-jumps Between The Treasury Bond Futures And Spot Returns Based On Time-varying CBP-GARCH Model

With the acceleration of finance globalization and the interest rate marketization, the volatility of interest rate becomes more frequently and sharply. As the interest rate products, the volatility of the Treasury bond futures and spot returns increase drastically, and jump phenomenon emerge successively. The co-jumps between the Treasury bond futures and spot returns become more and more obvious. On this background, the co-jumps between the Treasury bond futures and spot returns is becoming a hot spot in financial field, moreover, to find a model that can accurately portray this behavior is a core element of the problem.A time-varying CBP-GARCH model with the assumption that the jump size and jump intensity are changing over time, is used to study the co-jumps of the Treasury bond futures and spot returns. Firstly, by analyzing the related papers, the shortages of the existing papers in describing the co-jumps between the Treasury bond futures and spot returns are pointed out. Secondly, the related theories of co-jumps are illuminated. Thirdly, the jump model is introduced and the time-varying CBP-GARCH model is constructed by improving the classic CBP-GARCH model. Finally, the time-varying CBP-GARCH model is employed to analyze the co-jumps between the 10-year US Treasury bond futures and spot returns based on the jump features of a single market. Moreover, the evaluation criteria are selected to compare the performance with BEKK-GARCH model and classic CBP-GARCH model.The results show that, not only independent jumps, but also co-jumps significantly exist in the Treasury bond futures and spot returns. With regard to the jump size, the jump size of the Treasury bond futures and spot returns are time-varying. The mean of the jump size is correlated to the sign and magnitude of last period's returns, while the variances of the jump size depend on the volatilities of last period's returns. In terms of the jump intensity, the independent jump intensities and the co-jump intensities have a relationship with the market conditions. Compared to BEKK-GARCH model and classic CBP-GARCH model, the time-varying CBP-GARCH model is more accurate in capturing the co-jumps features between the Treasury bond futures and spot returns.