Valuation and Optimal Exercise of the Wild Card Option in the Treasury Bond Futures Market

Alex Kane, Alan J. Marcus

NBER Working Paper No. 1614 (Also Reprint No. r0751)
Issued in May 1985
NBER Program(s):Monetary Economics

The Chicago Board of Trade Treasury Bond Futures Contract allows the short position several delivery options as to when and with which bond the contract will be settled. The timing option allows the short position to choose any business day in the delivery month to make delivery. In addition, the contract settlement price is locked in at 2:00 p.m. when the futures market closes, despite the facts that the short position need not declare an intent to settle the contract until 8:00 p.m. and that trading in Treasury bonds car, occur all day in dealer markets. If bond prices change significantly between 2:00 and 8:00 p.m., the short has the option of settling the contract at a favorable 2:00 p.m. price. This phenomenon, which recurs on every trading day of the delivery month, creates a sequence of 6-hour put options for the short position which has been dubbed the "wild card option." This paper presents avaluation model for the wild card option and computes estimates of the value of that option, as well as rules for its optimal exercise.

download in pdf format
   (414 K)

download in djvu format
   (227 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1614

Published: Kane, Alex and Alan J. Marcus. "Valuation and Optimal Exercise of the Wild Card Option in the Treasury Bond Futures Market." Journal of Finance, Vol. 41, No. 1, (march 1986), pp. 195-207. citation courtesy of

Users who downloaded this paper also downloaded* these:
Longstaff w9312 The Flight-to-Liquidity Premium in U.S. Treasury Bond Prices
Patel and Zeckhauser w2322 Treasury Bill Futures as Hedges Against Inflation Risk
Lebergott Labor Force and Employment, 1800–1960
Levich w18256 FX Counterparty Risk and Trading Activity in Currency Forward and Futures Markets
Klein and Lewis w3674 Learning About Intervention Target Zones
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us