The bond and bond option market: The case of South Africa 1984–2014

Bond option transactions from a hedging perspective are currently almost non-existent in the South African bond and bond option market. As a result of comments and suggestions made by academics and independent observers a study was conducted in the South African bond options market amongst former and current bond option traders. The goals of the present study was to establish if bond options can be an effective hedging tool in the South African bond market, to conduct empirical tests on the basic option hedging strategies to ascertain these particular strategies’ suitability as hedges against investment risk by using actual market movements in the South African bond market, and to formulate recommendations that could be implemented to re-establish bond options as a viable hedging instruments in South Africa and also introduce it to Africa.