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Number of futures needed to hedge a bond portfolio (formula)

February 19, 2018

equation4

MDURt = the target modified duration, set to zero to completely hedge risk

MDURb = Modified Duration of the Bond set to zero to make a synthetic position

MDURf = Modified Duration of the futures (or cheapest-to-deliver bond)

βf = yield beta (or you can use conversion factor her of cheapest-to-deliver bond)

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