Research On The Pricing Of Five Year Treasury Bond Futures Contract In China

The underlying asset of China's 5 year treasury bond futures contract is a basket of treasury bonds,it allows the short to choose the cheapest bond for delivery,such design offers the short embedded options which will be reflected in the price of treasury bond futures contract.So it is different from the stock index futures and general commodity futures contract,and the determination of the theoretical price of the treasury bond futures contract is relatively complex.The purpose of this paper is to study the theoretical price determination of China's 5 year treasury bond futures contract,which has important theoretical and practical significance to improve the effectiveness of China's treasury bond futures price discovery function,as well as for investors to use the treasury futures to arbitrage and hedging.Based on the design of treasury bond futures,we analyze the development of treasury bond futures market and spot market,and the delivery mechanism in China and U.S.We have establish a pricing model for embedded options after discussing the characteristics of embedded options,then we provide a more accurate treasury bond futures pricing model.On the basis of theoretical analysis,this paper discusses the selection of the subject matter price of treasury bond futures by discussing the relationship between the price of the inter bank bond index,the 5 year bond index and the price of Treasury bond futures.Then the linear regression model is constructed to analyze the relationship between the embedded options and the treasury bond futures pricing.Then,the linear regression model is constructed to analyze the relationship between the embedded options and the Treasury bond futures price,and the effect of the bond futures pricing is studied by the specific data of the TF1612 contract.The study found that national debt futures price and the price of are linkage,The Treasury bond futures price is influenced by the inter-bank bond price,which is stronger than the exchange treasury bond price.That is,we should choose the inter-bank bond price as the subject matter price of treasury bond futures.The embedded options have significant impact on the pricing of treasury bond futures.The theoretical price is essentially in agreement with futures settlement price when the embedded options are not considered,but there is a certain degree of deviation.However,when it is based on the embedded options,the gap between the theoretical price and the settlement price is significantly reduced.Therefore,the embedded options can correct the deviation of treasury bond futures pricing.