Pricing The 10-year Treasury Bond Futures

The development of treasury bond futures makes an important breakthrough in Chinese future market.As the whole market is becoming more thrilling and unpredictable,treasury bond futures has become increasingly prominent,especially the newly launched 10-year treasury bond futures,which seems to be increasingly popular,and has attracted a large number of investors.This paper,concerning with the new environment,focuses on the pricing of the 10 year treasury bond futures in a comprehensive way.Compared with the existing articles,this paper has some features and innovation,the specific content is as follows:Firstly,since CTD switching can exert great influence on the value of existing market portfolio.This paper develops a new method to predict the critical switching point of CTDs.based on the "rule of thumb".The proposed method can be used to examine multiple deliverables at the same time,in which we also takes into account circumstances when term spread changes.Sencondly,we start to price the futures by combining the holding cost pricing model with dynamic interest rate models,among which we choose the following two types:BDT model and the two factor CIR model.Our results show that,in the current situation,the treasury bond future is undervalued.Thirdly,since the newly revised delivery system enable the shorts to choose the timing of their delivery,we manage to price this timing value using BDT models.And we find that the timing value is very small,almost near to zero.At last,a simple analysis on the influencing factors of the pricing error is made.The result shows that investor sentiment and futures trading volume can significantly affect the pricing error,which is due to the drastic changes as well as the Arbitrage deficiency of Chinese market...