The Pricing of Options on Ninety-Day Bank Accepted Bill Futures Contracts

Timothy Brent and Richard Heaney

The Manchester School of Economic & Social Studies, 1996, vol. 64, issue 0, 51-65

Abstract: This paper examines the pricing of options on ninety-day bank accepted bill futures contracts traded on the Sydney Futures Exchange. Pricing models are compared in two situations. The first assumes log-normally distributed prices and the second assumes log-normally distributed yields. It is found that log-normal yield-based pricing models generally outperform log-normal price-based models in terms of two error metrics, mean absolute error and mean percentage error. The comparison is based on time-matched data over the period January 1993 to June 1994. Two institutional characteristics of interest are physical delivery of bills at maturity of the futures contract and margining of the option premium. Copyright 1996 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:bla:manch2:v:64:y:1996:i:0:p:51-65

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