APPENDIX TO CHAPTER 11Note and Bond Futures
A11.1 FORWARD DROP APPROXIMATELY EQUALS CASH CARRY
Define the following notation, all for 100 face amount of a bond:
: flat price for spot settlement
: annual coupon payment
: number of days from spot settlement to the coupon payment date
: number of days from the coupon payment date to forward settlement
: number of days from spot to forward settlement
: accrued interest as of spot and forward settlements, respectively
: repo rate from spot to forward settlement
: flat price for forward settlement
With this notation, the forward price of the bond, based on the discussion in the text, can be written as,
Equation (A11.2) follows ...
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