Why do the LIFFE and DTB bund futures contracts trade at different prices?

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 31 December 1996

Working Paper No. 57
By Francis Breedon

Bund futures are traded in both London (LIFFE) and Frankfurt (DTB) on open outcry and electronic trading platform respectively. One oddity in this market that has attracted much practitioner comment is that the LIFFE contract has traded slightly more expensively - about 1.5 basis points - than the DTB one despite an almost identical specification. This paper explores a number of possible explanations for this phenomenon but finds that none are important enough to explain the observed price difference.

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