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# CTD Calculation

#### dliew

##### New Member
Hi all, I've tried searching the forum for the answer, but of no avail.
So, regarding questions about determining "cheapest-to-deliver" bonds ..

I am quite confused by the solutions provided above (taken from Handbook), which they compared the ratio of Quoted Bond Price to Conversion Factor , in order to determine the lowest cost as the CTD bond.

If I recall correctly, both BT & Schwesser suggested the method of choosing the bond with the smallest QBP - QFP × CF

Could anyone shed some light on this?

#### Nicole Seaman

Staff member
Subscriber
Hi all, I've tried searching the forum for the answer, but of no avail.
So, regarding questions about determining "cheapest-to-deliver" bonds ..

I am quite confused by the solutions provided above (taken from Handbook), which they compared the ratio of Quoted Bond Price to Conversion Factor , in order to determine the lowest cost as the CTD bond.

If I recall correctly, both BT & Schwesser suggested the method of choosing the bond with the smallest QBP - QFP × CF

Could anyone shed some light on this?
Hello @dliew

You are correct that this specific question has not been discussed in the forum. However, I did find this thread, which contains a lot of discussion regarding CTD bonds: https://www.bionicturtle.com/forum/...of-cheapest-to-deliver-bonds.9359/#post-40370.

We also have this video on our YouTube page that may be helpful:

.

If you still have questions, I'm sure that David or other members can help out more, but I wanted to suggest those links in case they could answer your questions.

Thank you,

Nicole

#### dliew

##### New Member
@Nicole Seaman

I am assuming you're saying the "smallest QBP - QFP × CF" is the correct way to determine the CTD bond,
so I guess we should ignore all the official explanation from the handbook (which suggested QBP/CF is the correct way to choose CTD bond) ?

#### David Harper CFA FRM

##### David Harper CFA FRM
Staff member
Subscriber
@Nicole Seaman Thank you!

@dliew Which handbook edition is that? (prior to 6th?)
For some strange reason, GARP's old method for CTD was (as in your example) to compute an "adjusted spot price" (see this question for similar approach https://www.bionicturtle.com/forum/...-conversion-factors-markets-and-products.4113) but it's totally wrong and has long since been fedback and corrected. As you say, for the CTD you definitely do want the MIN(delivery quoted price - QFP*CF) or MAX(QFP*CF - delivery quoted price).

Re: Handbook questions: many of them are obsolete. GARP's older questions contained a lot of errors, and we've been uploaded to them feedback from customers for ten years, such that the good news is the modern questions are much better but the feedback process has revealed many errors in the handbook Q&A (at least 30% error rate, probably nearer to 40%). So in general I would not use the handbook too much, as it no longer reflects the "modern" FRM practices which have benefited from cumulative improvement. Thanks!