Presenter: Jorge Hansen, AU

Title: Weekly Options, Stochastic Down and Up Jump Components, and Skewness of Treasury Bond Futures Across Tenors

Abstract: This study focuses on the weekly Treasury options market and presents two observations. First, the risk-neutral return distribution of the 30-year bond futures is a right-shifted version of the 10-year counterpart. Second, the return skewness for both tenors changes direction, with the 30-year (10-year) exhibiting positive (negative) skewness on average. A model with two Poisson processes and stochastic intensity rates is proposed as an explanation. The model accounts for correlated price jump distributions for both down and up return movements, which can differ in expected jump sizes between the two tenors. The estimated model supports the theoretical implications.

Organizers: Stefan Hirth and Anders Merrild Posselt