Contents

Brochure Structure
and Objectives
Characteristics of Fixed Income Securities
Bonds – Definition
Lifetime and Remaining Lifetime
Nominal and Actual Rate of Interest (Coupon and Yield)
Accrued Interest
The Yield Curve
Bond Valuation
Macaulay Duration
Modified Duration
Convexity – the Tracking Error of Duration
Eurex Fixed Income Derivatives
Characteristics of Exchange-traded Financial Derivatives
Introduction
Flexibility
Transparency and Liquidity
Leverage Effect
Introduction to Fixed Income Futures
What are Fixed Income Futures? – Definition
Futures Positions – Obligations
Settlement or Closeout
Contract Specifications
Eurex Fixed Income Futures – Overview
Futures Spread Margin and Additional Margin
Variation Margin
The Futures Price – Fair Value
Cost of Carry and Basis
Conversion Factor (Price Factor) and
Cheapest-to-Deliver (CTD) Bond
Identifying the Cheapest-to-Deliver Bond
Applications of Fixed Income Futures
Trading Strategies
Basic Futures Strategies
Long Positions (”Bullish“ Strategies)
Short Positions (”Bearish” Strategies)
Spread Strategies
Time Spread
Inter-Product Spread
Hedging Strategies
Choice of the Futures Contract

Perfect Hedge“ versus ”Cross Hedge“
Hedging Considerations
Determining the Hedge Ratio
Nominal Value Method

Modified Duration Method
Sensitivity Method
Static and Dynamic Hedging
Cash-and-Carry Arbitrage
Introduction to Options on Fixed Income Futures
Options on Fixed Income Futures – Definition
Options on Fixed Income Futures – Rights and Obligations
Closeout
Exercising Options on Fixed Income Future
Contract Specifications – Options on Fixed Income Future
Premium Payment and Risk Based Margining

Options on Fixed Income Futures – Overview Option Price

Components
Intrinsic Value
Time Value
Determining Factors
Volatility of the Underlying Instrument

Remaining Lifetime of the Option
Influencing Factors Important Risk Parameters“Greeks”
Delta
Gamma
Vega (Kappa)
Theta

Trading Strategies for Options on Fixed Income Futures
Long Call
Short Call
Long Put
Short Put
Bull Call Spread
Bear Put Spread
Long Straddle
Long Strangle
Impact of Time Value Decay and Volatility
Time Value Decay
Impact of Fluctuations in Market Volatility
Trading Volatility – Maintaining a Delta-Neutral Position with Futures Hedging Strategies
Hedging Strategies for a Fixed Time Horizon
Delta Hedging
Gamma Hedging
Zero Cost Collar Futures/Options Relationships,
Arbitrage Strategies
Synthetic Fixed Income Options and Futures Positions
Synthetic Long Call
Synthetic Short Call
Synthetic Long Put
Synthetic Short Put
Synthetic Long Future/Reversal
Synthetic Short Future/Conversion
Synthetic Options and Futures Positions – Overview Glossary
Appendix 1: Valuation
Formulae and Indicators
Single-Period Remaining Lifetime
Multi-Period Remaining Lifetime
Macaulay Duration
Convexity
Appendix 2:
Conversion Factors
Bonds Denominated in Euros
Bonds Denominated in Swiss Francs
Appendix 3: