Hull 6.

1: Theoretical Price of Treasury Bond Futures Contract

Cheapest to deliver (CTD) will be 12% coupon
Delivery in 270 days. Semi-annual coupons.
Last coupon -60 days; next coupon +122 days; Next +305 days
Face
Current Quoted Price
Coupon
Interest rate
Conversion Factor
Delivery (days)
Last Coupon (-days)
Next Coupon (+ days)

$100.00
$115.00
12%
10%
1.60
270
60
122

Coupon
60 days
Current
122 days
Coupon

Accrued Interest
Cash (Dirty Price)
PV of coupon
Cash Futures Price
Days Accrue, @ delivery
Days Remain, @ delivery
Quoted FP, 12% bond

$1.978
$116.978
$5.803
$119.711
148
35
$114.859

148 days
Maturity
35 days
Coupon

Quoted FP, CTD

$71.79

F=(Spot - Lump Sum Inc

1. Use COC to calculate "
Spot =
Lump Income =
Forward Price =
(implied cash futures pric

2. Tranlate dirty > clean,

Quoted Price, 12% bond =
(add AI)
Quoted Futures price
(divide by 1.6 CF)

ot - Lump Sum Income)*EXP[rT]

e COC to calculate "dirty" Forward
$116.98
ncome =
$5.803
d Price =
$119.711
lied cash futures price if 12% bond)

nlate dirty > clean, standard bond

d Price, 12% bond =
$114.859

d Futures price
e by 1.6 CF)

$71.79

2 bonds

pd
number

2%
2

0
1
2

3 bonds
pd
number

96.04% 96.040%
3.92% 99.960%
0.04% 100.000%

2%
3
0
1
2
3

94.12% 94.119%
5.76% 99.882%
0.12% 99.999%
0.00% 100.000%

1
2
1

0.9604
0.0196
0.0004

0.9604
0.0392
0.0004

1
3
3
1

0.941192
0.019208
0.000392
0.00080%

0.941192
0.057624
0.001176
0.00080%

0.000008