thommo77

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