On pg. 129 of Derivatives in Kaplan book, the accrued interest built from the purchase date of a treasury bond futures contract to expiration is SUBTRACTED to arrive at the treasury bond futures price. Why is this? At expiration, the long party buys the bond and must compensate the seller for the accrued interest due to the seller since the last coupon payment. So, wouldn’t the buyer have to pay more to compensate the seller for not receiving the accrued interest?
My guess is that although the underlying bond trades at dirty price, the futures prices are (traded and) settled at clean price. Happy to be corrected.
I think you’re right. Very unclear in the textbook. The accrued interest belongs to the seller, so it has to be the clean price, which is why the accrued interest is subtracted.