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The conversion factor associated with each bond the futures' delivery basket is constructed such that the invoice prices of the bonds are identical under the assumption that the yield curve is flat at the level of the futures' notional coupon. Therefore, the bond with the highest duration will be the CTD when yields are above the notional coupon and the bond ...


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First, I am not sure which exact statement was made. Also, you cannot just say "without CF" because you are essentially creating an artificial market with messed-up utility. In summary the cheapest-to-deliver bond is: The bond that results in the smallest loss or greatest profit for the futures seller. Futures sellers have to buy the bonds they are going ...


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In a case like this, where the settlement date is in the middle of the coupon period, it is not right to use PV = -110 (minus the purchase price) in Step 3. Instead you should increase the purchase price by the accrued interest, which is a fraction of the coupon based on how far the settlement date is within the current coupon period. (So for ex if you are ...


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The direct answer to your question on the choice of m is, "It depends." Your choice of m is dependent on the convention used by the source of your discount rate. Either may be appropriate. If you are actually looking to estimate a "fair" value, then the following will be relevant: A market yield(-to-maturity) approach assumes coupon reinvestment at that ...



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