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Duration-Based Hedge Ratio

Calculation of the optimal futures contracts

The optimal futures contracts number equals the portfolio value times the duration portfolio divided by the duration underlying asset and interest rate futures contract price.

Formula

QuantityVariable[SuperStar["N"], "Unitless"] == (QuantityVariable["P", "Money"]*QuantityVariable[Subscript["D", "P"], "Time"])/(QuantityVariable[Subscript["D", "F"], "Time"]*QuantityVariable[Subscript["F", "C"], "Money"])

symbol description physical quantity
N* optimal futures contracts number "Unitless"
P portfolio value "Money"
DF duration underlying asset "Time"
DP duration portfolio "Time"
FC interest rate futures contract price "Money"

Forms

Examples

Get the resource:

In[1]:=
ResourceObject["Duration-Based Hedge Ratio"]
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Get the formula:

In[2]:=
FormulaData[ResourceObject["Duration-Based Hedge Ratio"]]
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Use some values:

In[3]:=
FormulaData[ ResourceObject[ "Duration-Based Hedge Ratio"], {QuantityVariable["P","Money"] -> Quantity[20000000, "USDollars"], QuantityVariable[ \!\(\*SubscriptBox[\("D"\), \("P"\)]\),"Time"] -> Quantity[5.5`, "Years"], QuantityVariable[SuperStar["N"],"Unitless"] -> 200, QuantityVariable[ \!\(\*SubscriptBox[\("D"\), \("F"\)]\),"Time"] -> Quantity[8, "Years"]}]
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