[经济学]Class7_827_interestratefutures.ppt

Must be rounded up coz you can’t have a partial contract. Example A manager wishes to hedge a bond with a par value of $20 million using Treasury bond futures. Suppose that the CF for the CTD bond is 0.91; the DV01 for the CTD is 0.06895 and DV01 for the bond is 0.05954. Compute the hedge ratio: What futures position should the manager undertake? How many futures contracts? Long position : Float ? fixed Short position: Fixed ? floated 17 17 17 20 Duration is 3 month? calculate yourself! So the LIBOR goes up with time. If rate is going down, so price will go up ? long future. You want to invest in the higher rate and borrow at lower rate. ? rationale 2.64 and 2.87 ? implied forward rate.. Compared with 3.3 from future price ? arbitrage. I’m lovin’ it! : 3-6 buy futures and borrow cash 6-9 buy cash and short futures 1-3 ? borrow at 3.065 from 3 to 6. And the futures are longed at t=0. @96.7 If you’re paying floating debt? so you’re worried if the rates goes up. If the rates goes up the price goes down. If you’ve to gain when prices goes down, you have to short!!! Intuition. Bravo! Short forward rate equals long the futures because when forward rates go up, your price of futures go down. Buy treasury because it’s quality Because treasury rate is so safe that the rate goes down? Subprime market..lehman brothers. It can capture the yield difference 982.15=108,380/110.35 Exploiting Arbitrage Opportunities: The Math Term: 3 – 6 months: Implied forward Futures rate (0.03065 0.033) Buy Futures, Sell cash Actions at time t=0: Invest funds for 3 months at 2.64% Long Futures @ 96.70 Implies lending/investing in three months at a rate of 3.30% Borrow funds for 6 months at 2.87% Which is equivalent to committing today to borrow 3 months at 2.64% and committing today to roll in 3 months it over at a rate of 3.065% The first two actions “createa 6-month investment” Exploiting Arbitrage Opportunities: The Math Recall, actions at time t=0: Invest funds for 3 months at