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RoastBeef

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tT
发表于 2011-7-13 13:20 | 只看该作者
In the secret sauce, I am reading

Hedge ratio = DDp/DDctd * conversion factor for the CTD

This is under the condition that yield spread between the bond being hedged and the CTD issue is assumed to be constanct, the yield beta must equal one.

In which case that yield beta doesn't equal to one?(what's the implication for yield data not become to one)

The formula changes to

Hedge ratio = DDp/DDctd * conversion factor for the CTD * yield beta
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jmh530

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2#
发表于 2011-7-13 13:20 | 只看该作者
What's the cause for yield beta not equal to one?

In theory, does that mean that future contract and bond portfolio yield change wouldn't be idential, then why it is hedged that way?

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IAmNeil

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3#
发表于 2011-7-13 13:20 | 只看该作者
It's tackling 2 different concepts:

- hedge ratio addresses the relationship between the price of bond being hedged (BBH) & that delivered in the futures (CTD)
- yield beta is the relative change in the spread between the BBH and the CTD

.. that's why the hedge ratio can assume Yield Beta = 1.

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ohai

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4#
发表于 2011-7-13 13:20 | 只看该作者
In second formula when yield beta doesn't equal to one, does that also mean that the hedge is broken?

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