A Study On Interest Rate Risk Management And Trading Strategies Using China Treasury Bond Futures

This thesis is written as 5-year Chinese Treasury Bond Futures is being listed on the China Financial Futures Exchange. From the perspective of a futures company, another wheel of intense competition among the financial industry can be expected in the near future after Shanghai and Shenzhen 300 Stock Index Futures which was launched 3 years ago. Nevertheless, new challenges bring new opportunities. Therefore, it is very urgent and necessary to study this treasury bond futures, a brand new financial hedge instrument.This study includes an overview of the market, theoretical knowledge preparation, an illustration of application methods, and a detailed practical case study.This thesis contains six chapters in total. Chapter one describes the development of treasury bond futures in the international enviroment and explains the historical crisis of the "327" Chinese Treasury Bill Futures. Chapter two presents the current situation and the investors structure of the Chinese bond market. The third to fifth chapter is the core of this study. The third chapter introduces the most important methods of the interest rate risk measurement, including duration, convexity and DV01. The third chapter compares two approachs of the interest rate gap management, and discusses their strengths and limitations as the current implimented interest rate risks management instruments in financial institutions. The fourth chapter concentrates on the study of the treasury bond futures as a new interest rate risk hedge instrument, and studies some arbitrage trading strategies using the treasury bond futures as welL In the fifth chapter, the empirical analysis of the theroies and methods in this thesis is carried out based on the American and European bond market data. We came to an conclustion that by combining the target duration strategy and timing technology when using treasury bond futures, the investors can better manage the interest rate risk in the fixed income investment and achieve higher investment return. In the end, chapter six discusses profound and important influence of the 5-year Chinese Treasury Bond Futures to the Chinese financial market, the securities and futures industry.