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Chuckrox8

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tT
发表于 2011-7-11 18:59 | 只看该作者

Dollar Duration of a Futures Contract

receiving, guess, conversion, something, contract
To find the numbers of futures contract needed to achieve a target duration:

numbers of contract = (DDt - DDp) / (DDctd / conversion factor)

Why do we need to divide DDctd by the conversion factor? Since the futures contracts that we will be receiving are the cheapest to deliver contracts and have a duration of DDctd, wouldn't the formula (DDt - DDp) / DDctd work to find the numbers of futures contract we want? I guess I am missing / misunderstanding something.

Any insights and comments are appreciated!
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cityboy

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发表于 2011-7-11 18:59 | 只看该作者
Remember you are trading the futures contract , not some unknown CTD contract. Ultimately you as the long receive some convenient ctd contract. But the price of this one may not match the futures price , so we actualy receive either more or less based on a multiplier which serves to align the price of the futures contract to the actual ctd.

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Unforseen

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3#
发表于 2011-7-11 18:59 | 只看该作者
DDf = DDctd / (conversion factor). The futures' Duration may not be equal to CTD's. Can you confirm "Future Price=CTD Price/Conversion Factor"?

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bodhisattva

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4#
发表于 2011-7-11 18:59 | 只看该作者
yes deriv , that is correct

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