Quality Options and Hedging in Japanese Government Bond Future Markets

IFGWP 94-08

Posted: 13 Sep 1999

See all articles by Shang-Wu Yu

Shang-Wu Yu

University of Birmingham

Michael Theobald

University of Birmingham - Department of Accounting and Finance

John Cadle

University of Birmingham

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

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

Shang-Wu Yu

University of Birmingham ( email )

Birmingham B15 2TT, Birmingham B15 2TT
United Kingdom

Michael F. Theobald (Contact Author)

University of Birmingham - Department of Accounting and Finance ( email )

Birmingham B15 2TT
United Kingdom
0121 414 6678 (Fax)

John Cadle

University of Birmingham

Birmingham B15 2TT, Birmingham B15 2TT
United Kingdom

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