Hi Xu,
For your first question, it seems to me that all the mark to market gains/losses up until now would have been reflected in the margin account of the person with the short position. Hence the most recent settlement price is used instead of the locked in price.
For your second question, I would interpret as follows:
The important factor in determining the CTD Bond is the percentage change in price between bond price calculated at current implied yields and the exchange specified yield of 6%. For a higher coupon bond, its duration will be lower than a corresponding lower coupon bond since the payment would be weighted more towards the end of the term for the lower coupon bond.
This would imply higher percentage change in price for the low coupon bond (Approximate % change in price is Duration * change in yield).
Hence when yields are in excess of 6% low coupon bonds are favored.
Last edited by a moderator: Oct 26, 2019