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Cheapest to Deliver
(redirected from Cheapest-to-Deliver)

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Cheapest to Deliver
The individual units of an underlying asset that would be least expensive for the seller of a futures contract to deliver to the buyer. Some derivatives specify the quality of product that the seller must deliver. If there is no specification, the seller has the right to deliver any quality and still fulfill the requirements of the contract. In such a case, the rational seller will always deliver the CTD. This may be a product of lower quality, and the price of such a futures contract will reflect this.


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With respect to other risks such as cheapest-to-deliver risk, Senior Director Bill May said, "Based on Fitch's research for which LSTA provided important data and feedback, there appears to be little evidence of systemic cheapest-to-deliver risk inherent in LCDS, as evidenced by the convergence in pricing of term loans and revolvers post-bankruptcy.
Key concepts such as cheapest-to-deliver bonds, implied repo rates and conversion factors are discussed in detail.
For credit swaps including restructuring using the new supplement, the new provision would, in certain circumstances, limit the maturity of the obligations that are deliverable after the occurrence of a restructuring credit event, thereby limiting the so-called cheapest-to-deliver option that has caused problems following recent restructuring events.
 
 
 
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