Implicit delivery options and optimal delivery strategies for financial futures contracts |
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| Affiliation: | 1. PRISM and Labex « Financial Regulation », University Paris 1 Panthéon-Sorbonne, PRISM, 17, place de la Sorbonne, 75231 Paris Cedex 05, France;2. NEOMA Business School, Economics and Finance Department, 1, rue du Maréchal Juin, 76825 Mont Saint Aignan Cedex, France;3. University Rennes 1, IGR-IAE and Labex « Financial Regulation », 11 rue Jean Macé, 35708 Rennes Cedex 7, France;1. Departamento de Farmacología, Facultad de Medicina, Universidad Nacional Autónoma de México, Ciudad de México, México;2. Departamento de Biología Molecular y Biotecnología, Instituto de Investigaciones Biomédicas, Universidad Nacional Autónoma de México, Ciudad de México, México;3. Departamento de Inmunología, Instituto de Investigaciones Biomédicas, Universidad Nacional Autónoma de México, Ciudad de México, México |
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| Abstract: | Futures contract specification usually allow the short position some variation as to when, where, how much, and what is to be delivered. In this paper we derive the optimal delivery policy for the Treasury Bond futures contracts, and find that our policy produces profits that are positive and statistically significant. This indicates that future prices are ‘too high’ in that the short position can earn profits by skillfully exercising his delivery options. We find the actual delivery policies of market participants depart substantially from the optimal strategy. The implications of these findings for futures traders and bond dealers are discussed. |
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