标题: Hedge ratio [打印本页] 作者: RoastBeef 时间: 2011-7-13 13:20 标题: Hedge ratio
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作者: jmh530 时间: 2011-7-13 13:20
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?作者: IAmNeil 时间: 2011-7-13 13:20
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.作者: ohai 时间: 2011-7-13 13:20
In second formula when yield beta doesn't equal to one, does that also mean that the hedge is broken?
