Abstract
This paper empirically tests valuation models for the mortgage‐backed futures‐options contracts that traded on the Chicago Board of Trade (CBOT) from June of 1989 until March of 1992. A simple contingent‐claim model is shown to produce call option values on mortgage‐backed futures (MBF) contracts that are unbiased estimates of actual futures‐options prices. The ability of the MBF contract to hedge positions in current coupon Government National Mortgage Association (GNMA) securities relative to the effectiveness of cross‐hedging GNMA positions with T‐note and T‐bond futures contracts is also examined.
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