Hedge ratio formula differences question

ext · April 7, 2016, 4:51pm

Hi everyone,

Can someone kindly tell me what the difference between these two hedge formulas are and when you’d use the first one?

Formula 1: (D_H * P_H) / D_CTD * P_CTD) … I haven’t really seen this formula, i know how to apply formula 2. can someone please explain how they’re similiar and the application?

Formula 2: {[(D_T – D_P) / D_CTD] * (V_P / P_CTD)} * CF * Yield β

Formula 3: contract value / asset value … has anyone else come across this one? i haven’t seen it applied in any of the EOC questions.

Appreciate your time and help everyone!

sunseeker · April 7, 2016, 8:34pm

Formula 1 never used in my academic experience. Never come across exercises for it. It does sound as the hedge ratio

Formula 2 tells yu how many bond futures you need to change duration of your bond.

Formula 3 no clue