Chapter 5
Bond Futures Contracts
Futures Price and Delivery Option
The key difference between a bond forward and a bond futures contract is the existence of a set of deliverable bonds, called the deliverable basket. In particular, the person with a short position in a bond futures contract (i.e. the short) has a choice of bonds he can deliver. Since the bonds in the deliverable basket have different coupons and maturity dates, the exchanges introduce the concept of a conversion factor (CF), which is applied to the price of each bond when determining the invoice price that the short receives when delivering a particular bond into a particular futures contract. In order to make all deliverable bonds comparable, a CF is defined for each, which roughly ...
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