I came across the questions to calculate the number of contracts to reduce to bond exposure, sometimes the answer gives duration target of 0 as input, sometimes they use the duration of cash equivalent (0.25), i am wondering when we should use 0.25 instead of reduce the bond duration to 0 when plug into the equation?
Use 0.
the only time I have seen a short term bond duration of 0.25 used is when a bond-stock allocation change is being performed - sell stock or bonds to get cash (low duration of 0.5 --> average duration 0.25) and then that is converted to the other (buy bond if selling stock or buying stocks if selling bonds).
yes, that is the case I met and I use 0 and got the wrong answer