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Eurex fixed income trading strategies


eurex fixed income trading strategies

redemption (cash flows). The underlying instrument for Euro Bund Futures is a 6 notional long-term German Government Bond. Out-of-the-money A call option where the price of the underlying instrument is lower than the exercise price. Based on this assumption the bonds in the basket for delivery should be virtually all equally deliverable. Theoretically, it should thus be impossible to realize risk-free profits using counter transactions on the cash and forward markets (arbitrage). In this case, however, it would not be appropriate to exercise the option, since the investor can make a profit above the initial purchase price if he/she closes out,.e. Offsetting long and short positions in different maturity months of the same futures contract are referred to as spread positions. Initial Situation Market value of the bond portfolio Price of the CTD bond conf Future June 2002 Modified duration of the bond portfolio Modified duration of the CTD CTD conversion factor Strategy A profit should be made on the futures position by buying conf Futures. But is trading at a price.

Eurex fixed income trading strategies
eurex fixed income trading strategies

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Euro Bobl Futures June 2002 bought at a price of Euro Bobl Futures September 2002 sold at a price of Price of June/September spread bought 104.81 104.75.06Changed Market Situation The investors expectations have come true in May. Skinny Call Butterfly Buy Call Sell Call at higher strike Buy Call at higher strike? Selling bonds and simultaneously buying futures is referred to as a reverse cash-and-carry arbitrage. Essentially the conversion factor generates a price at which a bond would trade if its yield were 6 on delivery day. Result: The proceeds of EUR 2,700 made on the difference between the purchase and sale is equivalent to the balance of the variation margin (EUR 8,600 EUR 5,900) calculated on a daily basis. Electronic trading on Eurex guarantees extensive transparency of prices, volumes and executed transactions. You're Reading a Free Preview, pages 4 to 9 are not shown in this preview. Depending on the position to be hedged, they will buy or sell futures and thus, in effect, fix a future price level for their underlying position. Lifetime The period of time from the bond issue until the redemption of the nominal value. As such the buyer pays the seller the interest accrued up to the value date of the transaction, as he/she will receive the full coupon at the next coupon payment date. This can be a long call or a long put position, depending on the contract. According to prevailing convention, the traded price is the clean price.

Eurex fixed income trading strategies
eurex fixed income trading strategies


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