10 year JGB futures options

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meanreversion

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Does anyone trade these, or know where I can get a list of quotes? What about the implied vol, where is that trading roughly? I've just finished reading "The Greatest Trade Ever" and feel inspired - surely some cheap JGB puts could be just the thing ?!?
 
You're not the first, hence JGB puts aren't that cheap. For example, the JBZ0 140.5 puts (that's the curr ATM strike) costs arnd 26 ticks, which is arnd 5.5% B-S vol. You can find sort of a list of quotes on the TSE website, e.g. here: http://www.tse.or.jp/english/market/eqderiv/option/e_option.html

It's a bit of a challenge to find the correct link of their website, but I am sure it's there somewhere.
 
Are you quoting the B-S vol just for convenience? I could be way off-base here, but I thought that interest rates needed a different model because they don't obey a log-normal distribution...

... don't go into the nitty gritty, but am I being a ******? (and does me being a ****** have anything to do with my question?)
 
MrGecko said:
Are you quoting the B-S vol just for convenience? I could be way off-base here, but I thought that interest rates needed a different model because they don't obey a log-normal distribution...

... don't go into the nitty gritty, but am I being a ******? (and does me being a ****** have anything to do with my question?)
Click to expand...
You're correct... Convention for most interest rates options is normal vol, but this is difficult to compute for OTM options on bond futures ('cause there's all sorts of funky things that can happen when the price of the future changes). Hence the mkt convention for bond futures options is to use simple B-S, i.e. log-normal, vols. The real fun starts when you trade these options against the other interest rate options and have to convert between the two types of vol. That's an art, not a science, and there's all sorts of trades you can do arnd these. I could wax poetic about this further, but I'll spare you the really gory stuff.
 
Yeah, 20 year bull market in JGBs, too many people have been dashed against the rocks trying to pick a top.

The Japanese government now borrows more than it raises in taxation. Amazing.
 
Martinghoul said:
You're correct... Convention for most interest rates options is normal vol, but this is difficult to compute for OTM options on bond futures ('cause there's all sorts of funky things that can happen when the price of the future changes). Hence the mkt convention for bond futures options is to use simple B-S, i.e. log-normal, vols. The real fun starts when you trade these options against the other interest rate options and have to convert between the two types of vol. That's an art, not a science, and there's all sorts of trades you can do arnd these. I could wax poetic about this further, but I'll spare you the really gory stuff.
Click to expand...

Professor, you blind me with science!

I think first of all I need to get some JGB futures data, and do a bit of analysis.
 
meanreversion said:
Yeah, 20 year bull market in JGBs, too many people have been dashed against the rocks trying to pick a top.

The Japanese government now borrows more than it raises in taxation. Amazing.
Click to expand...

MR if the Japanese are borrowing so much shouldn't the JBG price be a lot lower? (so the yield rises).

Got any sources for them borrowing more than their taxation brings in? Would make interesting reading
 
From an article in the Economist

Falling prices mean that nominal GDP, which last year hit its lowest level since 1991, is likely to remain in the deep freeze. That will add to pressure on the public purse: in the 2010 budget, borrowing, at ¥44 trillion ($468 billion), is for the first time forecast to exceed tax revenues, at ¥37 trillion. It also means the gross debt-to-GDP ratio, already the highest in the rich world at 190%, will continue to rise.
 
You're right in that conventional thinking would indicate higher yields with more debt issuance, but the complete opposite has happened in Japan. In a way, we're getting towards boundary conditions for our fiat money system. US borrowing is out of control at 10% of GDP, with no plans of reduction.. yet 10yr bonds are close to the lowest they've been for half a decade.

What's to stop the Fed from buying all the debt issuance, i.e. monetising debt. Well, typically this leads to rampant inflation BUT Japan hasn't seen inflation in 15 years despite repeated QE.

No-one knows where this is all going. I favour the JPY to move lower over time, but Japan has a decent trade surplus, so according to theory the JPY needs to strengthen more.

Who the f knows?
 
Thanks for the economist article.

Lol. And thanks for the confused analysis showing both sides to the coin. Cheers.

Looks like we're all heading for anarchy!
 
FYI the economist have an app for iPhones which can read the articles aloud- v cool.
 
Pento said:
MR if the Japanese are borrowing so much shouldn't the JBG price be a lot lower? (so the yield rises).

Got any sources for them borrowing more than their taxation brings in? Would make interesting reading
Click to expand...

Well I would argue the factor which has caused JGB yields to be so low is the decade of low interest rates and quantitative easing. They suffer from deflation. The economy has not really done anything since the second world war.
 
tripleogstar said:
The economy has not really done anything since the second world war.
Click to expand...

that has to be the most inaccurate comment i've ever seen. try this one: http://www.amazon.co.uk/Japans-Poli...=sr_1_1?ie=UTF8&s=books&qid=1290893482&sr=8-1

the thing with japan is that it has the largest holding of $ and the whole financial system is run by the ministry of finance who tell the banks who to lend to and what bonds to buy. i believe it was earlier this year that japan projected for the first time they would raise more from issuing debt than taxes. remember though japan has massive $ assets. http://www.mof.go.jp/english/budget/pamphletjpffs2010s.pdf
 
Japan is a complicated case... There's reasons why it's been "circling the drain" for a long time now. However, it's really not a matter of economics (as usual). It's all about politics. Since arnd the 1990s there hasn't been a government that's lasted in office for more than 8 months, I think. Nothing ever gets done, which is why nothing is likely to happen for a while yet.
 
But although kan hasn't done anything yet he surely represents a mandate for change and the way he fought off Ozawa for leadership of the dpj means the bureaucrats time is coming to the end. The yen strengthening is probablly good but demographics have seemed a popular topic to pick on now.
 
You must be referring to another Kan... The approval rating of the Kan govt is extremely low and, to me, it looks like he's not gonna last long. Also, I remember we all thought that Hatoyama and the DPJ wresting power from the LDP was a "mandate for change" and all that. Seems like everyone discovered that it's business as usual, really. Kan is certainly better than the alternatives, but, unfortunately, he's just more of the same.
 
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