RT Journal Article
SR Electronic
T1 Ultra Treasury Bond Futures
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 117
OP 139
DO 10.3905/jfi.2022.1.150
VO 32
IS 3
A1 Ren-Raw Chen
A1 Dean Leistikow
A1 You-Tseng Su
A1 Shih-Kuo Yeh
YR 2022
UL https://pm-research.com/content/32/3/117.abstract
AB In this article, we determine the quality option value of Ultra Treasury bond futures contracts, which allow deliverable bonds between 25 and 30 years to maturity, and compare them with the new regular Treasury bond futures, which allow deliverable bonds between 15 and 25 years to maturity. We use the arbitrage-free Ho-Lee model for the valuation. Using weekly data from March 25, 2011, until April 16, 2021, after the Ultra futures contract was introduced, we discover that (1) that quality option value is higher for the Ultra futures than the new regular futures, (2) the Ho-Lee model consistently underprices the market, and (3) the “dry spell” period predicted by Ben-Abdallah and Breton in 2017 is only partially supported.