The bond-hedging lab combines duration, futures, and forward positions. A portfolio can be made locally insensitive to a yield move by matching its dollar duration with an offsetting instrument.
\nThe hedge has to match the exposure being measured. A bond's price, accrued interest, maturity, coupon, and day-count convention determine the sensitivity; a futures contract adds its own conversion factor and basis. Matching only the face amount can leave a large residual rate exposure.
\nThe notes use this as a practical version of the earlier lesson: a hedge is a model of a risk, and the model must be re-estimated as the portfolio and the curve change.
","contentMarkdown":"The bond-hedging lab combines duration, futures, and forward positions. A portfolio can be made locally insensitive to a yield move by matching its dollar duration with an offsetting instrument.\n\nThe hedge has to match the exposure being measured. A bond's price, accrued interest, maturity, coupon, and day-count convention determine the sensitivity; a futures contract adds its own conversion factor and basis. Matching only the face amount can leave a large residual rate exposure.\n\nThe notes use this as a practical version of the earlier lesson: a hedge is a model of a risk, and the model must be re-estimated as the portfolio and the curve change.","dataUrl":"https://sharifhsn.dev/api/posts/bond-hedging.json","date":"2024-12-05","datePublished":"2024-12-05","description":"The bond-hedging lab combines duration, futures, and forward positions. A portfolio can be made locally insensitive to a yield move by matching its dollar duration with an offsetti…","site":"https://sharifhsn.dev","slug":"bond-hedging","source":"FE-535 | Risk Management","sourceUrl":null,"tags":["Risk Management","Bonds","Hedging"],"title":"Hedging Bonds","url":"https://sharifhsn.dev/blog/bond-hedging/","version":"1","wordCount":106}