Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you

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Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you have estimated that the yield on 20-year bonds changes by 10 basis points for every 15-basis-point move in the yield on 5-year bonds. You hold a $1 million portfolio of 5-year maturity bonds with modified duration four years and desire to hedge your interest rate exposure with T-bond futures, which currently have modified duration nine years and sell at F0 = $95.

How many futures contracts should you sell? P-63

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ISE Investments

ISBN: 9781266085963

13th International Edition

Authors: Zvi Bodie, Alex Kane, Alan Marcus

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