Quality Options and Hedging in Japanese Government Bond Future Markets
IFGWP 94-08
Posted: 13 Sep 1999
Abstract
The quality options for Japanese Government Bond Futures contracts are analyzed using a discrete trinomial lattice approach based on a two-factor Heath, Jarrow and Morton (1990b) model. The impacts of the quality option on hedging effectiveness are investigated. In general, the pure quality option is found to be relatively small and, while the option does not have a dramatic impact upon hedging, accounting for the quality option can improve the performance of optimal hedging strategies.
JEL Classification: G13, G15
Suggested Citation: Suggested Citation
Yu, Shang-Wu and Theobald, Michael F. and Cadle, John, Quality Options and Hedging in Japanese Government Bond Future Markets. IFGWP 94-08, Available at SSRN: https://ssrn.com/abstract=6268
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