Just want to confirm this concept real quick. Physical settlement has to deliver whatever the bond is but cash settlment can choose the cheapest to deliver bond, is this correct?
Thanks!
Exact opposite I believe. Physical settlement requires the adjustments to par amounts as specified by the futures exchange (which brings about the cheapest to deliver option)
Physical settlement delivers face value of bond. Cash settlement uses CTD calculation. See example 2 in reading 52.
I see now. Thank you both for the help!