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Terms Structure of Interest Rates and Implicit Options: The Case of Japanese Bond Futures |
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| Authors: | Shang-Wu Yu |
| Affiliation: | Associate Professor of Finance at the National Taiwan Institute of Technology |
| Abstract: | The quality option for Japanese Government Bond Futures contracts is analysed using a term structure approach based upon a two-factor Heath, Jarrow and Morton (1990b) model. The option value is found to be 0.12%–0.2% of par three months prior to delivery. Also, analysis of variance confirms that the quality option has a negative theta . |
| Keywords: | term structure quality option timing option value basis |