The main theme of this paper is hedging with interest rate futures contracts. This paper consists of two subthemes. The one is hedge model of interest rate futures, the other is hedge effect of the model. Hedge model derives hedge ratio, which means t...
The main theme of this paper is hedging with interest rate futures contracts. This paper consists of two subthemes. The one is hedge model of interest rate futures, the other is hedge effect of the model. Hedge model derives hedge ratio, which means the number of futures contracts against a spot for hedging. There are two major models in deriving hedge ratio : portfolio theoretic model and price sensitivity model. Portfolio theoretic model is based on Markowitz's portfolio theory. Meanwhile BPV or Duration is used in price sensitivity model.
A number of empirical researches were performed on the hedge effect of the two hedge models. Most of the researches showed that the hedge strategy using the models was effective and especially, price sensitivity model was more effective than portfolio theoretic model. Pratically using hedge model, price sensitivity model is far easier than portfolio theoretic model because it doesn't need time-serial data.