Terms Structure of Interest Rates and Implicit Options: The Case of Japanese Bond Futures

Shang‐Wu Yu

Journal of Business Finance & Accounting, 1997, vol. 24, issue 5, 593-614

Abstract: The quality option for Japanese Government Bond Futures contracts is analysed using a term structure approach based upon a two‐factor Heath, Jarrow and Morton (1990b) model. The option value is found to be 0.12%–0.2% of par three months prior to delivery. Also, analysis of variance confirms that the quality option has a negative theta.

Date: 1997
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