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April 22nd, 2012, 04:34 PM   #1
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Theoritical value of a contract (needing help !!!)

Hello everybody !! i reaaaally need help with this exercice i'm starting to lose my hair ! no matter how hard i try i just cant answer the questions since i cant find any accurate formulas using the information given in the appendixes . To compute the value of the contract , do i need to sum (123.70 x coupon rate)/(1+YTM)^i from i=march 10 2011 to maturity for each bond ? where do i use the conversion factor , market rate , accrued interest and all the other data ? i really feel lost if anyone could solve this exercice it would greatly help me ! please !

On January 31, 2011, the price of the Euro-bund contract for the March 2011 maturity was 123.70. Based on the information available in appendix 1 and 2:

a. Determine the theoretical value of the contract.
b. Determine the implied repo rate.
c. Determine the result of a cash-and-carry arbitrage.
d. Determine which of the 3 bonds available for delivery is the cheapest-to-deliver.

The money market rate is 0.956% pa.

Appendix 1: Deliverable bonds Maturity: Mach 2011
Settlement date: March, 10 2011
Code ISIN Coupon(%) Maturity Conversion Factor
DE0001135390 3.25 04.01.2020 0.815645
DE0001135408 3.00 04.07.2020 0.790231
DE0001135416 2.25 04.09.2020 0.734383

Appendix 2: Information on deliverable bonds (On January, 31 2011)
Code ISIN Issue date Clean price Accrued interest YTM (%) M.Duration
DE0001135390 13.11.2009 101.16 0.2582 3.099 7,637
DE0001135408 30.04.2010 98.90 2.2849 3.134 7,906
DE0001135416 20.08.2010 93.07 1.0233 3.095 8,343
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April 23rd, 2012, 11:50 AM   #2
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Re: Theoritical value of a contract (needing help !!!)

i know the value of the contract is 127 but i cant find it myself since i dont have any formula ! nobody can help ??
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January 26th, 2014, 03:13 AM   #3
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Re: Theoritical value of a contract (needing help !!!)

please did you kept the solution of this exercise?

I need it very urgent if you don't mind!!

specially for the arbitrage question; do we make arbitrage for each bond or we use only the cheapest to deliver?? if we make chsh and carry arbitrage for each bund, it is possible to have a negative value? why the impo rate will be usefull for us?

Thank you
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