标题: Trick Question: Volatility of Bond [打印本页] 作者: LBriscoe 时间: 2011-7-13 15:06 标题: Trick Question: Volatility of Bond
If the volatility of the bond to be hedged is high, more futures contract is needed to hedge it (Beta > 1).
What if the volatility of the underlying of the futures is high? Would more contracts, or less contracts be needed to hedge the bond?作者: mik82 时间: 2011-7-13 15:06
Volatility isn't a criteria when hedging using futures. I know where this question came from.
NO EXCUSES作者: jmh530 时间: 2011-7-13 15:06
If by volatility, you mean duration, then more futures are needed to offset a longer duration bond.
Less futures are needed to hedge if the futures (or CTD bond) have a longer duration作者: IAmNeil 时间: 2011-7-13 15:06
I remember once of the Schweser question has it that if your CTD is volatile, more will be needed to hedge. Today I do the sample question it states if the bond you want to hedge is volatile, then you need to increase the contracts to hedge it...
UGH
Can someone explain the logic?作者: thommo77 时间: 2011-7-13 15:06
It is only applicable in cross-hedge where future's underlying might be exposed to different risk factors than the bond being hedged
hedge ratio =exposure of bond to risk factor / exposure of futures to risk factor
So if you determined the number of futures needed to hedge the bond is 100 based on the original DD formula
then you need = 100 * hedge Ratio
So if bond is risky than the future, hedge ratio will be greater than 1 and you need more futures
This is from Schweser作者: PalacioHill 时间: 2011-7-13 15:06
THATS RIGHT. I remember now. Slipped out of my tiny head. Thanks Sanjcfa!
