The Research of Arbitrage Strategy for TaiwanGovernment Bond Futures

• Main Authors: YU-CHUNG CHANG, 張玉中
• Other Authors: 作者未提供
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/fzrayh

碩士 === 銘傳大學 === 財務金融學系碩士在職專班 === 94 === A capital market consists of mainly stock market and bond market. Retail investors are more familiar with the stock market and relatively unfamiliar with the bond market dominated by institutional investors. This is mainly because bond prices do not fluctuate as acutely as stock prices, and the large sum of money required to play in the bond market tends to exclude general investors. In fact, average turnover of bond market typically surpasses that of stock market. In the case of Taiwan, the stock market turnover (daily average) is less than NT$100 billion, while the daily bond market turnover has surpassed NT$200 billion. However, the trading of stock index derivatives such as index futures and index options are highly active. In contrast, the government bond futures that were debuted over two years ago by Taiwan Futures Exchange in January 2004 offer frequent arbitrage opportunities because of inadequate liquidity. This study proposes a viable arbitrage model, and capitulates the profit margin of arbitrage based on empirical results. The study uses the daily transaction data of 10-year bond futures and the daily transaction data on deliverable bonds of Grand Cathay Securities Co.,Ltd over a ten-year period from January 2004 to December 2005. The arbitrage practice involves buying the spot of the cheapest-to-deliver bonds, shorting the futures to its settlement date, and engaging in arbitrage as long as settlement profit exists as calculated by the arbitrage model. The arbitrage profit is more substantial when market interest rates fluctuate widely.