You are here: HomeFuturesPricingWhich Influencing Factors are Relevant when Calculating the Price of the Euro Bund Future?

Which Influencing Factors are Relevant when Calculating the Price of the Euro Bund Future?

The underlying instrument of fixed-income futures at Eurex Exchange is only a notional (synthetic) bond.

Upon delivery, the seller of a futures contract is entitled to choose which of the bonds designated by Eurex Exchange as deliverable he wishes to use to fulfill his delivery obligation.

Since bonds may vary significantly as to their coupons and residual time to maturity, it makes a major difference which of the bonds are delivered. The deliverable bonds are therefore (almost) equalized using conversion factors. Equalized means that all bonds have a yield of 6%.



Conversion factor = Price factor

Deliverable bonds and conversion factors on the website of Eurex Exchange

A futures price can be calculated for each of the deliverable bonds using the arbitrage formula.

In practice, the majority of futures sellers select the bond which, taking the conversion factor into account, is the cheapest for them to deliver. This bond is therefore called CTD bond - the cheapest-to-deliver bond. The price development of the futures contract follows the price movement of the CTD bond.

The deliverable bonds are displayed on a special program screen that is accessible to exchange members. The current CTD is indicated by a "Y".

deliverablebonds

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