Conversion Factors: Calculations

Conversion Factors: Calculations

Intuition Publishing Pty Ltd
Updated Sep 24, 2020

Conversion factors are needed to determine the invoice price for government bond futures contracts. We discuss the present value of an annuity (PVA) method for calculating bond values, go through the steps of the valuation process using PVA for a US Treasury bond, and calculate the conversion factor. We then apply the PVA methodology to a long conventional gilt and calculate the conversion factor.