Strategies · Library · Futures
§10.1.2Hedges and structures
Interest rate risk hedging
A variant of §10.1 Hedging risk with futures
Use interest rate futures to protect a bond holding, sizing by a conversion factor or by duration.
- Asset class
- Futures
- Held for
- Varies
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Dollar duration ratio between bond and future.
- Entry and exit
- Open to cover the horizon.
- Sizing
- Duration-based.
How it fails
- Basis risk
- Duration drift
- Roll costs
Data it needs
- bond prices
- rate futures
- duration
ZN=F closes exist; bond data does not.
How ARCANE uses it
Background only.
A hedge needing shorts and duration.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §10.1.2, p. 94 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.