yet another concept i overlooked that resulted in me missing questions on practice exams. here is my understanding of yield beta:
yield beta measures the relationship between a bond being hedged (presumably by interest rate futures) and the cheapest to deliver bond (CTD). it literally represents the coefficient from the CTD bond yield in the regression equation.
a yield beta of 1 suggests that the yields of the CTD bond and the bond being hedged move together (no change in spread).
if yield beta > 1, the yield on the bond to be hedged is more volatile than that of the hedge instrument, thus requiring more interest rate futures than would be the case of yield beta = 1.
formula for number of interest rate future contracts necessary to hedge a given position:
[DD (target) - DD (amount of bond position to be hedged)] / [DD (CTD bond) / conversion factor ]
let me know if i missed anything |
发表于 2011-7-11 19:39
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