| Treasury bond futures is one of the most important instruments in interest rate futures,which produced in the United States in 1970s.It uses government bond as the underlying asset in a futures trading.China has the similar market environment with America when implementing the bond futures.As a key financial derivative to hedge interest rate risk,treasury bond futures will play a important role in Chinese financial markets in futures.This paper valuate the Chinese treasury bond futures based on the contract terms and trading rules,followed by an empirical study.Dynamic Interest rate models for describing term structure emerged in 1970s.With the reform of interest rates,it was widely accepted by academics to describe interest rate behavior with the help of random variables.From Merton Model,Vasicek Model to Hull-White,Ho-Lee Model,and then to HJM Model,BGM Model,Interest rate term structure model has become an essential tool for pricing financial derivatives.In China,the market benchmark interest rates are mostly set by government several years earlier.As a result,the model is not initially as suitable and useful in China as in other countries.However,with the acceleration of interest rates liberalization in recent years,a more complete market makes the term structure model much more helpful in China.This paper consider a general mean-reverting drift-diffusion process(Vasicek Model for stochastic interest rates and propose a pricing algorithm that can handle the CFFEX Treasury bond futures at describing market interest rate.Meanwhile,we use the results of Cost of Carry theory as a comparison,which provide guidance for risk hedging of portfolio investment. |
