Quality options and hedging in Japanese Government Bond Futures markets |
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| Authors: | Shang-Wu Yu Michael Theobald John Cadle |
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| Institution: | (1) National Taiwan Institute of Technology, Taiwan;(2) University of Birmingham, England;(3) Department of Accounting and Finance, University of Birmingham Edgbaston, B15 27T Birmingham, UK |
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| Abstract: | Quality options for Japanese Government Bond Futures contracts are analysed using a discrete trinomial tree approach based upon a two-factor Heath, Jarrow, and Morton (1990b) model. The impacts of the quality option on hedging effectiveness are investigated. In general, the pure quality option is found to be relatively small and, while the quality option does not have a dramatic impact upon hedging, accounting for the quality option can improve the performance of optimal hedging strategies. |
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