Bund Basis Trading
Basis trading involves the purchase of a deliverable Bund and simultaneous sale of a number of Bund futures contracts or the reverse — the sale of a cash Bund and simultaneous purchase of a number of Bund futures contracts. It is a form of arbitrage designed to extract risk-free profits by enforcing the delivery mechanism that underpins the Bund futures contract. The contract seller has the right and obligation to deliver any Bund which fulfils the relevant exchanges deliverability criteria and in return receives an amount of Deutschmarks according to a preset formula.
KeywordsImplied Volatility Future Contract Yield Spread Yield Differential Delivery Schedule
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