The Cheapest-to-Deliver Premium: Theory and Evidence

46 Pages Posted: 18 Feb 2010 Last revised: 10 Jan 2013

Date Written: January 10, 13


This paper provides a theoretical and empirical investigation of the impact of bond futures trading on the price of the underlying bond. Using data from German government bond and futures markets, it is found that cheapest-to-deliver bonds trade on a premium that decreases towards zero as the bonds become ineligible for delivery. Based on this observation, an equilibrium model is developed that describes the theoretical underpinnings of the premium. Consistent with the model, the premium is found to be positively related to bond’s relative cheapness in delivery, value as collateral, the amount of physical deliveries, and time to delivery.

Keywords: G12, G14, G15

JEL Classification: German government bonds, cheapest-to-deliver, futures markets

Suggested Citation

Sihvonen, Jukka, The Cheapest-to-Deliver Premium: Theory and Evidence (January 10, 13). Available at SSRN: or

Jukka Sihvonen (Contact Author)

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics