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Conversion Factors, Delivery Option and Hedge EÆciency of a Multi-Issuer Bond Future Wolfgang B uhler, Klaus Dullmann  Octob er 2001 Abstract This pap er makes three contributions to the literature on b ond futures contracts: Firstly, we analyse the value of the delivery option of a multi-issuer contract. This contract diers from traditional contracts like the T-Bond or the Bund Future in that b onds of dierent issuers can b e delivered by the seller of the future. The future and its delivery option are valued using a two-factor aÆne mo del, which b elongs to the intensity-based class of default-risk mo dels develop ed by DuÆe and Singleton (1999). Secondly, we prop ose three conversion-factor systems to reduce the danger of a short squeeze in the sp ot market. The conversion factors simultaneously account for dierences in coup on, time to maturity, and the credit risk of deliverable b onds. Thirdly, in the empirical part of the pap er we analyse the impact of these conversion-factor systems on the hedge eÆciency of the corresp onding futures contracts. Based on the value of the delivery option and the results for the hedge eÆciency, an appropriate conversion-factor system is recommended, having a prosp ective Europ ean sovereign b ond future in mind. Keywords: multi-issuer future, delivery option, conversion factors, credit spreads, aÆne mo del JEL classication: G13, G15  Address: Prof. Dr. Wolfgang Buhler: Chair of Finance, University of Mannheim, D-68131 Ma