This sheet shows basic regressions in Excel

Single-Variable Regression
x
y
9.0
9.3
8.8
9.2
8.6
9.5
8.4
8.6
8.4
7.9
8.4
7.6
8.3
7.4
8.2
7.1
7.9
6.7
7.7
6.3
7.6
6.1
7.7
5.8
7.4
6.2
7.6
6.0
7.8
5.6
7.8
5.7
7.6
5.5
7.7
5.5
7.8
5.1
7.8
5.0

Regressions Stats:
Method 1: uses SLOPE and INTERCEPT
Beta
Intercept
2.91
-16.52
Method 2: uses LINEST. More general function
Beta
Intercept
2.91
-16.52

10.0
9.0

f(x) = 2.91x - 16.52

R = 0.82

8.0
7.0
6.0
5.0
4.0
7.0

7.5

8.0

8.5

9.0

9.5

Forward Rate Calculator

Date 1
Date 2
Date 3

1/7/2011
1/7/2012
1/7/2015

Interest Rates between various periods

R1:
1.0%
<-- between Dates 1 and 2
R2:
4.0%
<-- between Dates 1 and 3
Forward rate from Date 2 to Date 3
(1+R1)^1 * (1+F)^3 = (1+R2)^4
Forward:

5.02%

Setting up a Treasury curve trade

Today

11/9/2016

Shorter-maturity bond:
Coupon
Maturity
Yield
Price
Mod Dur
DV01 ($/mn)

Longer-maturity bond:
2.50%
2/15/2017
2.00%
100.13
0.26
26.4

Base notional ($ mn)

100

Curve slope (bp)

150

Coupon
Maturity
Yield
Price
Mod Dur
DV01 ($/mn)
Notional ($ mn)

3.25%
6/15/2018
3.50%
99.61
1.53
152.0
17.4

For a curve steepener, we will buy 100.00 million notional of the shorter bond and sell 17.4
For a curve flattener, we will sell 100.00 million notional of the shorter bond and buy 17.40

shorter bond and sell 17.40 million notional of the longer-maturity bond.
horter bond and buy 17.40 million notional of the longer-maturity bond.

Setting up a Treasury butterfly trade

Today

1/8/2011

Butterfly short wing:

Coupon
Maturity
Yield

Butterfly belly:
1.375%
2/15/2013
0.66%

Coupon
Maturity
Yield

Price
Mod Dur
DV01 ($/mn)
Weight on leg

101.49
2.06
209.3
0.5

Price
Mod Dur
DV01 ($/mn)
Weight on leg

Base notional ($ mn)

168.06

Notional ($ mn)

Butterfly (body - 0.5*(wing1 + wing2):

31

For a belly-richening trade, we will buy 100.00 million notional of the body bond and sell 1
For a belly-cheapening trade, we will sell 100.00 million notional of the body bond and buy

Butterfly long wing:

4.00%
8/15/2018
2.769%
108.39
6.49
703.5
1.0
100

Coupon
Maturity
Yield
Price
Mod Dur
DV01 ($/mn)
Weight on leg
Notional ($ mn)

5.375%
2/15/2031
4.253%
115.06
12.57
1446.8
0.5
24.31

he body bond and sell 168.06 million notional and sell 24.31 million notional of the wings.
the body bond and buy 168.06 million notional and buy 24.31 million notional of the wings.

he wings.
f the wings.

Carry Calculation

Start date
End date
Calendar days
Coupon prd start
Coupon prd end
Coupon period days
Coupon rate
Financing rate
Bond price
Bond duration
Cash inflow ($)
Cash outflow ($)
Net cashflow ($)
Net cashflow (32nds)
Yield carry (bps)

1/15/2010
4/15/2010
90
12/15/2009
6/15/2010
182
4%
1%
102
4.8
0.9890
0.2550
0.73
23.49
15.3

Contract
Rate (%)
Rolldown (bp)
Daily Vol* (bp)
Ann. Ratio**
EDU0
0.37
EDZ0
0.42
5.0
3.9
0.32
EDH1
0.50
7.5
4.2
0.45
EDM1
0.60
10.5
4.9
0.54
EDU1
0.75
14.5
5.6
0.66
EDZ1
0.94
19.5
6.1
0.80
EDH2
1.12
18.0
6.6
0.69
EDM2
1.31
18.5
6.9
0.67
EDU2
1.48
17.5
7.2
0.62
EDZ2
1.67
18.5
7.3
0.64
EDH3
1.83
16.5
7.5
0.56
EDM3
2.02
19.0
7.6
0.63
EDU3
2.20
18.0
7.6
0.59
EDZ3
2.39
19.0
7.7
0.62
* Std. dev. of daily changes in the Eurodollar rate over past six months.
** Calculated as annualized rolldown (*4) divided by ann. vol. (*15.84).
Source: Bloomberg.

Conversion factor calculation (for 10-year and 30-year futures):

Futures contract (Mar 2011):
TYH1
Bond in futures basket:
Coupon
4.000%
Maturity
8/15/2018
First Delivery date
3/1/2011
Maturity (years)
Maturity rounded down to nearest qtr.
C. factor maturity date
6% yield bond price
Conversion factor

7.46
7.25
5/29/2018
88.38
0.8838

Conversion factor calculation (for 2-year, 3-year, 5-year and 7-year futures):
Futures contract (Mar 2011):
FVH1
Bond in futures basket:
Coupon
1.250%
Maturity
8/15/2015
First Delivery date
3/1/2011
Maturity (years)
Maturity (whole number years)
Maturity months (rounded down)
Maturity rounded down to nearest month
C. factor maturity date
6% yield bond price
Conversion factor

4.46
4.00
5
4.4167
7/30/2015
81.816
0.8182

and 7-year futures):

Hedging an off-the-run Treasury with an on-the-run

Today
Instrument being hedged
Off-the-run Treasury:
Coupon
Maturity
Yield
Price
Mod. Dur
DV01 ($/mn)

11/9/2016

5.125%
5/15/2016
2%
Err:502
Err:502
Err:502

Hedge ratio with no yield beta

Off-the-run notional ($ mn):
100.0
Hedge notional ($ mn):
Err:502
Hedge ratio with yield beta:
Yield beta:
Off-the-run notional ($ mn):
Hedge notional ($ mn):

1.01
100.0
Err:502

Instrument used for hedging

On-the-run Treasury:
Coupon
Maturity
Yield
Price
Mod. Dur
DV01 ($/mn)

Source: Bloomberg

ument used for hedging

he-run Treasury:
2.125%
12/31/2015
1.95%
Err:502
Err:502
Err:502

Date
5Y On-the-run Treasury
7/24/2009
2.5298
7/27/2009
2.5874
0.0576
7/28/2009
2.6009
0.0135
7/29/2009
2.6316
0.0307
7/30/2009
2.625
-0.0066
7/31/2009
2.5144
-0.1106
8/3/2009
2.662
0.1476
8/4/2009
2.6957
0.0337
8/5/2009
2.7194
0.0237
8/6/2009
2.7059
-0.0135
8/7/2009
2.8181
0.1122
8/10/2009
2.7467
-0.0714
8/11/2009
2.6654
-0.0813
8/12/2009
2.6756
0.0102
8/13/2009
2.554
-0.1216
8/14/2009
2.5068
-0.0472
8/17/2009
2.406
-0.1008
8/18/2009
2.4562
0.0502
8/19/2009
2.4058
-0.0504
8/20/2009
2.409
0.0032
8/21/2009
2.5638
0.1548
8/24/2009
2.4826
-0.0812
8/25/2009
2.4421
-0.0405
8/26/2009
2.4352
-0.0069
8/27/2009
2.4685
0.0333
8/28/2009
2.4451
-0.0234
8/31/2009
2.385
-0.0601
9/1/2009
2.315
-0.07
9/2/2009
2.2651
-0.0499
9/3/2009
2.2983
0.0332
9/4/2009
2.3515
0.0532
9/7/2009
2.3549
0.0034
9/8/2009
2.3917
0.0368
9/9/2009
2.3649
-0.0268
9/10/2009
2.2813
-0.0836
9/11/2009
2.3012
0.0199
9/14/2009
2.3682
0.067
9/15/2009
2.3951
0.0269
9/16/2009
2.4389
0.0438
9/17/2009
2.3614
-0.0775
9/18/2009
2.4525
0.0911
9/21/2009
2.4525
0
9/22/2009
2.4153
-0.0372
9/23/2009
2.3715
-0.0438
9/24/2009
2.365
-0.0065

9/25/2009
9/28/2009
9/29/2009
9/30/2009
10/1/2009
10/2/2009
10/5/2009
10/6/2009
10/7/2009
10/8/2009
10/9/2009
10/12/2009
10/13/2009
10/14/2009
10/15/2009
10/16/2009
10/19/2009
10/20/2009
10/21/2009
10/22/2009
10/23/2009
10/26/2009
10/27/2009
10/28/2009
10/29/2009
10/30/2009
11/2/2009
11/3/2009
11/4/2009
11/5/2009
11/6/2009
11/9/2009
11/10/2009
11/11/2009
11/12/2009
11/13/2009
11/16/2009
11/17/2009
11/18/2009
11/19/2009
11/20/2009
11/23/2009
11/24/2009
11/25/2009
11/26/2009
11/27/2009
11/30/2009
12/1/2009

2.365
2.3317
2.3351
2.3117
2.1825
2.2053
2.2085
2.2416
2.1686
2.2215
2.3481
2.3481
2.2912
2.3279
2.3782
2.3513
2.3412
2.2875
2.3412
2.358
2.4459
2.4867
2.3714
2.3342
2.4351
2.3084
2.3283
2.3516
2.375
2.3349
2.2947
2.2947
2.2913
2.2879
2.2545
2.2543
2.1842
2.1641
2.1906
2.1472
2.1769
2.1667
2.09
2.1051
2.1085
2.0391
1.9996
2.0357

0
-0.0333
0.0034
-0.0234
-0.1292
0.0228
0.0032
0.0331
-0.073
0.0529
0.1266
0
-0.0569
0.0367
0.0503
-0.0269
-0.0101
-0.0537
0.0537
0.0168
0.0879
0.0408
-0.1153
-0.0372
0.1009
-0.1267
0.0199
0.0233
0.0234
-0.0401
-0.0402
0
-0.0034
-0.0034
-0.0334
-0.0002
-0.0701
-0.0201
0.0265
-0.0434
0.0297
-0.0102
-0.0767
0.0151
0.0034
-0.0694
-0.0395
0.0361

12/2/2009
12/3/2009
12/4/2009
12/7/2009
12/8/2009
12/9/2009
12/10/2009
12/11/2009
12/14/2009
12/15/2009
12/16/2009
12/17/2009
12/18/2009
12/21/2009
12/22/2009
12/23/2009
12/24/2009
12/25/2009
12/28/2009
12/29/2009
12/30/2009
12/31/2009
1/1/2010
1/4/2010
1/5/2010
1/6/2010
1/7/2010
1/8/2010
1/11/2010
1/12/2010
1/13/2010
1/14/2010
1/15/2010
1/18/2010
1/19/2010
1/20/2010
1/21/2010
1/22/2010
1/25/2010
1/26/2010
1/27/2010
1/28/2010
1/29/2010
2/1/2010
2/2/2010
2/3/2010
2/4/2010
2/5/2010

2.0885
2.1183
2.2416
2.1715
2.105
2.1449
2.1883
2.2487
2.2857
2.3263
2.3331
2.212
2.2727
2.3947
2.4629
2.4802
2.5357
2.536
2.5981
2.5671
2.6116
2.6788
2.6788
2.635
2.5611
2.5913
2.6115
2.5912
2.5575
2.4735
2.5372
2.4935
2.4159
2.4158
2.446
2.4123
2.3419
2.3414
2.3614
2.3411
2.3913
2.3867
2.3232
2.3734
2.3601
2.4037
2.3
2.2333

0.0528
0.0298
0.1233
-0.0701
-0.0665
0.0399
0.0434
0.0604
0.037
0.0406
0.0068
-0.1211
0.0607
0.122
0.0682
0.0173
0.0555
0.0003
0.0621
-0.031
0.0445
0.0672
0
-0.0438
-0.0739
0.0302
0.0202
-0.0203
-0.0337
-0.084
0.0637
-0.0437
-0.0776
-0.0001
0.0302
-0.0337
-0.0704
-0.0005
0.02
-0.0203
0.0502
-0.0046
-0.0635
0.0502
-0.0133
0.0436
-0.1037
-0.0667

2/8/2010
2/9/2010
2/10/2010
2/11/2010
2/12/2010
2/15/2010
2/16/2010
2/17/2010
2/18/2010
2/19/2010
2/22/2010
2/23/2010
2/24/2010
2/25/2010
2/26/2010
3/1/2010
3/2/2010
3/3/2010
3/4/2010
3/5/2010
3/8/2010
3/9/2010
3/10/2010
3/11/2010
3/12/2010
3/15/2010
3/16/2010
3/17/2010
3/18/2010
3/19/2010
3/22/2010
3/23/2010
3/24/2010
3/25/2010
3/26/2010
3/29/2010
3/30/2010
3/31/2010
4/1/2010
4/2/2010
4/5/2010
4/6/2010
4/7/2010
4/8/2010
4/9/2010
4/12/2010
4/13/2010
4/14/2010

2.2266
2.3135
2.3639
2.3639
2.3304
2.3305
2.3002
2.3845
2.4726
2.4491
2.4424
2.3409
2.3511
2.3217
2.3018
2.2818
2.2652
2.2651
2.2717
2.3382
2.3682
2.3348
2.3783
2.4152
2.4051
2.3951
2.348
2.3614
2.4153
2.4559
2.4052
2.4154
2.5887
2.6309
2.5871
2.5972
2.6006
2.5435
2.5873
2.6684
2.7363
2.6956
2.5976
2.6348
2.6248
2.5876
2.5741
2.5978

-0.0067
0.0869
0.0504
0
-0.0335
0.0001
-0.0303
0.0843
0.0881
-0.0235
-0.0067
-0.1015
0.0102
-0.0294
-0.0199
-0.02
-0.0166
-0.0001
0.0066
0.0665
0.03
-0.0334
0.0435
0.0369
-0.0101
-0.01
-0.0471
0.0134
0.0539
0.0406
-0.0507
0.0102
0.1733
0.0422
-0.0438
0.0101
0.0034
-0.0571
0.0438
0.0811
0.0679
-0.0407
-0.098
0.0372
-0.01
-0.0372
-0.0135
0.0237

4/15/2010
4/16/2010
4/19/2010
4/20/2010
4/21/2010
4/22/2010
4/23/2010
4/26/2010
4/27/2010
4/28/2010
4/29/2010
4/30/2010
5/3/2010
5/4/2010
5/5/2010
5/6/2010
5/7/2010
5/10/2010
5/11/2010
5/12/2010
5/13/2010
5/14/2010
5/17/2010
5/18/2010
5/19/2010
5/20/2010
5/21/2010
5/24/2010
5/25/2010
5/26/2010
5/27/2010
5/28/2010
5/31/2010
6/1/2010
6/2/2010
6/3/2010
6/4/2010
6/7/2010
6/8/2010
6/9/2010
6/10/2010
6/11/2010
6/14/2010
6/15/2010
6/16/2010
6/17/2010
6/18/2010
6/21/2010

2.5437
2.4661
2.5167
2.5438
2.4931
2.5371
2.5881
2.5643
2.4219
2.4998
2.4766
2.4164
2.4565
2.3763
2.2898
2.1541
2.1635
2.2627
2.2327
2.279
2.2423
2.1556
2.1985
2.0626
2.1219
1.9831
2.0218
1.9886
1.9718
2.0178
2.1914
2.0919
2.0919
2.0555
2.1316
2.1482
1.9826
1.9298
1.9792
1.9692
2.1116
2.0285
2.0317
2.0749
2.0449
1.9818
2.0114
2.0247

-0.0541
-0.0776
0.0506
0.0271
-0.0507
0.044
0.051
-0.0238
-0.1424
0.0779
-0.0232
-0.0602
0.0401
-0.0802
-0.0865
-0.1357
0.0094
0.0992
-0.03
0.0463
-0.0367
-0.0867
0.0429
-0.1359
0.0593
-0.1388
0.0387
-0.0332
-0.0168
0.046
0.1736
-0.0995
0
-0.0364
0.0761
0.0166
-0.1656
-0.0528
0.0494
-0.01
0.1424
-0.0831
0.0032
0.0432
-0.03
-0.0631
0.0296
0.0133

6/22/2010
6/23/2010
6/24/2010
6/25/2010
6/28/2010
6/29/2010
6/30/2010
7/1/2010
7/2/2010
7/5/2010
7/6/2010
7/7/2010
7/8/2010
7/9/2010
7/12/2010
7/13/2010
7/14/2010
7/15/2010
7/16/2010
7/19/2010
7/20/2010
7/21/2010
7/22/2010
7/23/2010
7/26/2010
7/27/2010
7/28/2010
7/29/2010
7/30/2010
8/2/2010
8/3/2010
8/4/2010
8/5/2010
8/6/2010
8/9/2010
8/10/2010
8/11/2010
8/12/2010
8/13/2010
8/16/2010
8/17/2010
8/18/2010
8/19/2010
8/20/2010
8/23/2010
8/24/2010
8/25/2010
8/26/2010

1.9647
1.9182
1.9475
1.9013
1.8257
1.7668
1.7733
1.8027
1.8157
1.8157
1.7565
1.7794
1.8123
1.8353
1.8452
1.8948
1.8055
1.7559
1.6669
1.6996
1.6864
1.6402
1.673
1.7321
1.7254
1.7883
1.6955
1.6584
1.5964
1.6355
1.5475
1.606
1.5668
1.5046
1.524
1.4491
1.4295
1.4813
1.4516
1.38
1.4285
1.4348
1.3956
1.4537
1.4112
1.3166
1.3749
1.3733

-0.06
-0.0465
0.0293
-0.0462
-0.0756
-0.0589
0.0065
0.0294
0.013
0
-0.0592
0.0229
0.0329
0.023
0.0099
0.0496
-0.0893
-0.0496
-0.089
0.0327
-0.0132
-0.0462
0.0328
0.0591
-0.0067
0.0629
-0.0928
-0.0371
-0.062
0.0391
-0.088
0.0585
-0.0392
-0.0622
0.0194
-0.0749
-0.0196
0.0518
-0.0297
-0.0716
0.0485
0.0063
-0.0392
0.0581
-0.0425
-0.0946
0.0583
-0.0016

8/27/2010
8/30/2010
8/31/2010
9/1/2010
9/2/2010
9/3/2010
9/6/2010
9/7/2010
9/8/2010
9/9/2010
9/10/2010
9/13/2010
9/14/2010
9/15/2010
9/16/2010
9/17/2010
9/20/2010
9/21/2010
9/22/2010
9/23/2010
9/24/2010
9/27/2010
9/28/2010
9/29/2010
9/30/2010
10/1/2010
10/4/2010
10/5/2010
10/6/2010
10/7/2010
10/8/2010
10/11/2010
10/12/2010
10/13/2010
10/14/2010
10/15/2010
10/18/2010
10/19/2010
10/20/2010
10/21/2010
10/22/2010
10/25/2010
10/26/2010
10/27/2010
10/28/2010
10/29/2010
11/1/2010
11/2/2010

1.4908
1.3863
1.3311
1.3962
1.4224
1.4819
1.482
1.3968
1.4525
1.5647
1.5785
1.5157
1.4433
1.4434
1.4633
1.4339
1.4109
1.2991
1.3188
1.3123
1.3453
1.2861
1.2303
1.2759
1.2629
1.2565
1.2241
1.1917
1.1593
1.127
1.1041
1.104
1.1363
1.1169
1.1784
1.188
1.123
1.1035
1.0969
1.1325
1.1454
1.178
1.2499
1.3124
1.2306
1.1661
1.166
1.1563

0.1175
-0.1045
-0.0552
0.0651
0.0262
0.0595
0.0001
-0.0852
0.0557
0.1122
0.0138
-0.0628
-0.0724
0.0001
0.0199
-0.0294
-0.023
-0.1118
0.0197
-0.0065
0.033
-0.0592
-0.0558
0.0456
-0.013
-0.0064
-0.0324
-0.0324
-0.0324
-0.0323
-0.0229
-0.0001
0.0323
-0.0194
0.0615
0.0096
-0.065
-0.0195
-0.0066
0.0356
0.0129
0.0326
0.0719
0.0625
-0.0818
-0.0645
-0.0001
-0.0097

11/3/2010
11/4/2010
11/5/2010
11/8/2010
11/9/2010
11/10/2010
11/11/2010
11/12/2010
11/15/2010
11/16/2010
11/17/2010
11/18/2010
11/19/2010
11/22/2010
11/23/2010
11/24/2010
11/25/2010
11/26/2010
11/29/2010
11/30/2010
12/1/2010
12/2/2010
12/3/2010
12/6/2010
12/7/2010
12/8/2010
12/9/2010
12/10/2010
12/13/2010
12/14/2010
12/15/2010
12/16/2010
12/17/2010
12/20/2010
12/21/2010
12/22/2010
12/23/2010
12/24/2010
12/27/2010
12/28/2010
12/29/2010
12/30/2010
12/31/2010
1/3/2011
1/4/2011
1/5/2011
1/6/2011
1/7/2011

1.108
1.0308
1.0915
1.114
1.2467
1.198
1.2076
1.3645
1.5259
1.4666
1.4667
1.4966
1.5169
1.4177
1.3946
1.5609
1.5641
1.5281
1.502
1.4661
1.6367
1.6698
1.6141
1.5155
1.7236
1.8806
1.8875
1.9826
1.8752
2.0679
2.1193
2.0245
1.9544
1.9479
1.9449
2.0028
2.0485
2.0556
2.0219
2.145
2.0292
2.0622
2.006
2.0026
2.0059
2.1383
2.0652
1.9593

-0.0483
-0.0772
0.0607
0.0225
0.1327
-0.0487
0.0096
0.1569
0.1614
-0.0593
0.0001
0.0299
0.0203
-0.0992
-0.0231
0.1663
0.0032
-0.036
-0.0261
-0.0359
0.1706
0.0331
-0.0557
-0.0986
0.2081
0.157
0.0069
0.0951
-0.1074
0.1927
0.0514
-0.0948
-0.0701
-0.0065
-0.003
0.0579
0.0457
0.0071
-0.0337
0.1231
-0.1158
0.033
-0.0562
-0.0034
0.0033
0.1324
-0.0731
-0.1059

n Treasury

Date
5.125% May-16
1D
7/24/2009
3.158
7/27/2009
3.227
7/28/2009
3.212
7/29/2009
3.226
7/30/2009
3.172
7/31/2009
3.033
8/3/2009
3.201
8/4/2009
3.248
8/5/2009
3.294
8/6/2009
3.281
8/7/2009
3.397
8/10/2009
3.32
8/11/2009
3.217
8/12/2009
3.238
8/13/2009
3.117
8/14/2009
3.081
8/17/2009
2.991
8/18/2009
3.029
8/19/2009
2.961
8/20/2009
2.955
8/21/2009
3.112
8/24/2009
3.027
8/25/2009
2.985
8/26/2009
2.977
8/27/2009
2.993
8/28/2009
2.97
8/31/2009
2.909
9/1/2009
2.85
9/2/2009
2.795
9/3/2009
2.851
9/4/2009
2.93
9/7/2009
2.935
9/8/2009
2.948
9/9/2009
2.933
9/10/2009
2.822
9/11/2009
2.812
9/14/2009
2.884
9/15/2009
2.917
9/16/2009
2.95
9/17/2009
2.881
9/18/2009
2.961
9/21/2009
2.958
9/22/2009
2.926
9/23/2009
2.886
9/24/2009
2.849

Yield Change
0.069
-0.015
0.014
-0.054
-0.139
0.168
0.047
0.046
-0.013
0.116
-0.077
-0.103
0.021
-0.121
-0.036
-0.09
0.038
-0.068
-0.006
0.157
-0.085
-0.042
-0.008
0.016
-0.023
-0.061
-0.059
-0.055
0.056
0.079
0.005
0.013
-0.015
-0.111
-0.01
0.072
0.033
0.033
-0.069
0.08
-0.003
-0.032
-0.04
-0.037

f(x) = 1.0083637992x - 0.0013677065

0.25
R = 0.9638480449
0.2
0.15
0.1
0.05
0
-0.2

-0.15

-0.1

-0.05

-0.05
-0.1
-0.15
-0.2

9/25/2009
9/28/2009
9/29/2009
9/30/2009
10/1/2009
10/2/2009
10/5/2009
10/6/2009
10/7/2009
10/8/2009
10/9/2009
10/12/2009
10/13/2009
10/14/2009
10/15/2009
10/16/2009
10/19/2009
10/20/2009
10/21/2009
10/22/2009
10/23/2009
10/26/2009
10/27/2009
10/28/2009
10/29/2009
10/30/2009
11/2/2009
11/3/2009
11/4/2009
11/5/2009
11/6/2009
11/9/2009
11/10/2009
11/11/2009
11/12/2009
11/13/2009
11/16/2009
11/17/2009
11/18/2009
11/19/2009
11/20/2009
11/23/2009
11/24/2009
11/25/2009
11/26/2009
11/27/2009
11/30/2009
12/1/2009

2.794
2.772
2.783
2.782
2.645
2.666
2.668
2.698
2.623
2.684
2.823
2.83
2.772
2.831
2.884
2.84
2.827
2.78
2.838
2.869
2.952
3.006
2.88
2.842
2.92
2.788
2.806
2.847
2.888
2.863
2.819
2.811
2.802
2.802
2.762
2.754
2.675
2.65
2.688
2.648
2.685
2.664
2.585
2.54
2.542
2.445
2.444
2.501

-0.055
-0.022
0.011
-0.001
-0.137
0.021
0.002
0.03
-0.075
0.061
0.139
0.007
-0.058
0.059
0.053
-0.044
-0.013
-0.047
0.058
0.031
0.083
0.054
-0.126
-0.038
0.078
-0.132
0.018
0.041
0.041
-0.025
-0.044
-0.008
-0.009
0
-0.04
-0.008
-0.079
-0.025
0.038
-0.04
0.037
-0.021
-0.079
-0.045
0.002
-0.097
-0.001
0.057

12/2/2009
12/3/2009
12/4/2009
12/7/2009
12/8/2009
12/9/2009
12/10/2009
12/11/2009
12/14/2009
12/15/2009
12/16/2009
12/17/2009
12/18/2009
12/21/2009
12/22/2009
12/23/2009
12/24/2009
12/25/2009
12/28/2009
12/29/2009
12/30/2009
12/31/2009
1/1/2010
1/4/2010
1/5/2010
1/6/2010
1/7/2010
1/8/2010
1/11/2010
1/12/2010
1/13/2010
1/14/2010
1/15/2010
1/18/2010
1/19/2010
1/20/2010
1/21/2010
1/22/2010
1/25/2010
1/26/2010
1/27/2010
1/28/2010
1/29/2010
2/1/2010
2/2/2010
2/3/2010
2/4/2010
2/5/2010

2.549
2.609
2.733
2.671
2.611
2.652
2.713
2.777
2.793
2.82
2.834
2.716
2.783
2.915
2.99
2.996
3.051
3.051
3.091
3.065
3.054
3.1
3.11
3.071
3.009
3.054
3.066
3.066
3.04
2.94
3.01
2.969
2.897
2.894
2.916
2.877
2.813
2.821
2.84
2.824
2.864
2.838
2.777
2.834
2.815
2.871
2.773
2.71

0.048
0.06
0.124
-0.062
-0.06
0.041
0.061
0.064
0.016
0.027
0.014
-0.118
0.067
0.132
0.075
0.006
0.055
0
0.04
-0.026
-0.011
0.046
0.01
-0.039
-0.062
0.045
0.012
0
-0.026
-0.1
0.07
-0.041
-0.072
-0.003
0.022
-0.039
-0.064
0.008
0.019
-0.016
0.04
-0.026
-0.061
0.057
-0.019
0.056
-0.098
-0.063

2/8/2010
2/9/2010
2/10/2010
2/11/2010
2/12/2010
2/15/2010
2/16/2010
2/17/2010
2/18/2010
2/19/2010
2/22/2010
2/23/2010
2/24/2010
2/25/2010
2/26/2010
3/1/2010
3/2/2010
3/3/2010
3/4/2010
3/5/2010
3/8/2010
3/9/2010
3/10/2010
3/11/2010
3/12/2010
3/15/2010
3/16/2010
3/17/2010
3/18/2010
3/19/2010
3/22/2010
3/23/2010
3/24/2010
3/25/2010
3/26/2010
3/29/2010
3/30/2010
3/31/2010
4/1/2010
4/2/2010
4/5/2010
4/6/2010
4/7/2010
4/8/2010
4/9/2010
4/12/2010
4/13/2010
4/14/2010

2.704
2.784
2.826
2.841
2.804
2.802
2.775
2.864
2.945
2.927
2.934
2.818
2.822
2.749
2.736
2.725
2.712
2.713
2.707
2.771
2.809
2.777
2.81
2.837
2.827
2.821
2.768
2.767
2.813
2.839
2.789
2.801
2.977
3.005
2.963
2.976
2.959
2.927
2.96
3.055
3.1
3.054
2.96
2.997
2.989
2.943
2.924
2.957

-0.006
0.08
0.042
0.015
-0.037
-0.002
-0.027
0.089
0.081
-0.018
0.007
-0.116
0.004
-0.073
-0.013
-0.011
-0.013
0.001
-0.006
0.064
0.038
-0.032
0.033
0.027
-0.01
-0.006
-0.053
-0.001
0.046
0.026
-0.05
0.012
0.176
0.028
-0.042
0.013
-0.017
-0.032
0.033
0.095
0.045
-0.046
-0.094
0.037
-0.008
-0.046
-0.019
0.033

4/15/2010
4/16/2010
4/19/2010
4/20/2010
4/21/2010
4/22/2010
4/23/2010
4/26/2010
4/27/2010
4/28/2010
4/29/2010
4/30/2010
5/3/2010
5/4/2010
5/5/2010
5/6/2010
5/7/2010
5/10/2010
5/11/2010
5/12/2010
5/13/2010
5/14/2010
5/17/2010
5/18/2010
5/19/2010
5/20/2010
5/21/2010
5/24/2010
5/25/2010
5/26/2010
5/27/2010
5/28/2010
5/31/2010
6/1/2010
6/2/2010
6/3/2010
6/4/2010
6/7/2010
6/8/2010
6/9/2010
6/10/2010
6/11/2010
6/14/2010
6/15/2010
6/16/2010
6/17/2010
6/18/2010
6/21/2010

2.914
2.841
2.884
2.902
2.843
2.89
2.932
2.913
2.772
2.858
2.815
2.746
2.79
2.703
2.633
2.492
2.515
2.621
2.596
2.653
2.605
2.523
2.556
2.425
2.465
2.311
2.373
2.333
2.311
2.349
2.499
2.419
2.419
2.384
2.479
2.494
2.329
2.27
2.319
2.312
2.455
2.365
2.383
2.429
2.401
2.332
2.363
2.38

-0.043
-0.073
0.043
0.018
-0.059
0.047
0.042
-0.019
-0.141
0.086
-0.043
-0.069
0.044
-0.087
-0.07
-0.141
0.023
0.106
-0.025
0.057
-0.048
-0.082
0.033
-0.131
0.04
-0.154
0.062
-0.04
-0.022
0.038
0.15
-0.08
0
-0.035
0.095
0.015
-0.165
-0.059
0.049
-0.007
0.143
-0.09
0.018
0.046
-0.028
-0.069
0.031
0.017

6/22/2010
6/23/2010
6/24/2010
6/25/2010
6/28/2010
6/29/2010
6/30/2010
7/1/2010
7/2/2010
7/5/2010
7/6/2010
7/7/2010
7/8/2010
7/9/2010
7/12/2010
7/13/2010
7/14/2010
7/15/2010
7/16/2010
7/19/2010
7/20/2010
7/21/2010
7/22/2010
7/23/2010
7/26/2010
7/27/2010
7/28/2010
7/29/2010
7/30/2010
8/2/2010
8/3/2010
8/4/2010
8/5/2010
8/6/2010
8/9/2010
8/10/2010
8/11/2010
8/12/2010
8/13/2010
8/16/2010
8/17/2010
8/18/2010
8/19/2010
8/20/2010
8/23/2010
8/24/2010
8/25/2010
8/26/2010

2.305
2.257
2.267
2.226
2.137
2.081
2.069
2.091
2.113
2.11
2.057
2.089
2.13
2.147
2.151
2.208
2.12
2.069
1.979
2.009
2
1.95
1.995
2.057
2.056
2.115
2.029
1.978
1.901
1.945
1.857
1.913
1.865
1.788
1.802
1.723
1.67
1.707
1.667
1.591
1.643
1.645
1.609
1.662
1.624
1.53
1.59
1.555

-0.075
-0.048
0.01
-0.041
-0.089
-0.056
-0.012
0.022
0.022
-0.003
-0.053
0.032
0.041
0.017
0.004
0.057
-0.088
-0.051
-0.09
0.03
-0.009
-0.05
0.045
0.062
-0.001
0.059
-0.086
-0.051
-0.077
0.044
-0.088
0.056
-0.048
-0.077
0.014
-0.079
-0.053
0.037
-0.04
-0.076
0.052
0.002
-0.036
0.053
-0.038
-0.094
0.06
-0.035

8/27/2010
8/30/2010
8/31/2010
9/1/2010
9/2/2010
9/3/2010
9/6/2010
9/7/2010
9/8/2010
9/9/2010
9/10/2010
9/13/2010
9/14/2010
9/15/2010
9/16/2010
9/17/2010
9/20/2010
9/21/2010
9/22/2010
9/23/2010
9/24/2010
9/27/2010
9/28/2010
9/29/2010
9/30/2010
10/1/2010
10/4/2010
10/5/2010
10/6/2010
10/7/2010
10/8/2010
10/11/2010
10/12/2010
10/13/2010
10/14/2010
10/15/2010
10/18/2010
10/19/2010
10/20/2010
10/21/2010
10/22/2010
10/25/2010
10/26/2010
10/27/2010
10/28/2010
10/29/2010
11/1/2010
11/2/2010

1.681
1.57
1.514
1.596
1.618
1.683
1.688
1.592
1.648
1.752
1.777
1.71
1.637
1.651
1.679
1.648
1.621
1.504
1.513
1.509
1.546
1.479
1.425
1.45
1.441
1.425
1.395
1.365
1.327
1.294
1.28
1.28
1.309
1.295
1.366
1.38
1.313
1.293
1.289
1.329
1.343
1.367
1.445
1.51
1.405
1.337
1.335
1.323

0.126
-0.111
-0.056
0.082
0.022
0.065
0.005
-0.096
0.056
0.104
0.025
-0.067
-0.073
0.014
0.028
-0.031
-0.027
-0.117
0.009
-0.004
0.037
-0.067
-0.054
0.025
-0.009
-0.016
-0.03
-0.03
-0.038
-0.033
-0.014
0
0.029
-0.014
0.071
0.014
-0.067
-0.02
-0.004
0.04
0.014
0.024
0.078
0.065
-0.105
-0.068
-0.002
-0.012

11/3/2010
11/4/2010
11/5/2010
11/8/2010
11/9/2010
11/10/2010
11/11/2010
11/12/2010
11/15/2010
11/16/2010
11/17/2010
11/18/2010
11/19/2010
11/22/2010
11/23/2010
11/24/2010
11/25/2010
11/26/2010
11/29/2010
11/30/2010
12/1/2010
12/2/2010
12/3/2010
12/6/2010
12/7/2010
12/8/2010
12/9/2010
12/10/2010
12/13/2010
12/14/2010
12/15/2010
12/16/2010
12/17/2010
12/20/2010
12/21/2010
12/22/2010
12/23/2010
12/24/2010
12/27/2010
12/28/2010
12/29/2010
12/30/2010
12/31/2010
1/3/2011
1/4/2011
1/5/2011
1/6/2011
1/7/2011

1.279
1.186
1.244
1.255
1.378
1.33
1.338
1.49
1.656
1.592
1.599
1.638
1.65
1.55
1.533
1.671
1.668
1.633
1.615
1.576
1.752
1.794
1.751
1.648
1.865
2.014
2.029
2.12
2.018
2.214
2.253
2.166
2.091
2.084
2.074
2.135
2.181
2.187
2.154
2.282
2.129
2.159
2.106
2.096
2.109
2.237
2.167
2.063

-0.044
-0.093
0.058
0.011
0.123
-0.048
0.008
0.152
0.166
-0.064
0.007
0.039
0.012
-0.1
-0.017
0.138
-0.003
-0.035
-0.018
-0.039
0.176
0.042
-0.043
-0.103
0.217
0.149
0.015
0.091
-0.102
0.196
0.039
-0.087
-0.075
-0.007
-0.01
0.061
0.046
0.006
-0.033
0.128
-0.153
0.03
-0.053
-0.01
0.013
0.128
-0.07
-0.104

7992x - 0.0013677065
0.25
449
0.2
0.15
0.1
0.05
0
-0.1

-0.05

-0.05
-0.1
-0.15
-0.2

0.05

0.1

0.15

0.2

0.25

Hedging an off-the-run Treasury with an on-the-run

Today

11/9/2016

Instrument being hedged

Treasury Bond:
Coupon
Maturity
Yield

5.125%
5/15/2016
2.00%

Price
Mod. Dur
DV01 ($/mn)
Treasury futures hedge ratio calculation:
Futures contract (Mar 2011):
Cheapest-to-Deliver Bond:
Coupon
Maturity
Yield
Conversion factor
Price
Mod. Dur
DV01 ($/mn)
Simple hedge ratio (CTD DV01/C Factor) ($/contract)
Empirical regression hedge ratio ($/contract)

Err:502
Err:502
Err:502

TYH1
4.250%
11/15/2017
2.58%
0.9069
101.66
0.97
99.0
10.91
73.44

Hedging based on simple hedge ratio

Off-the-run notional ($ mn):
# of futures contract to hedge:

100.0
Err:502

Hedging based on empirical regression hedge ratio

Off-the-run notional ($ mn):
# of futures contract to hedge:

100.0
Err:502

Source: Bloomberg.
Replace yield series with CTD yield
Date
4.25% 11/1
3/1/2010
3.199
3/2/2010
3.192
3/3/2010
3.194
3/4/2010
3.176
3/5/2010
3.248
3/8/2010
3.288
3/9/2010
3.258
3/10/2010
3.283
3/11/2010
3.296
3/12/2010
3.273
3/15/2010
3.266
3/16/2010
3.212
3/17/2010
3.205
3/18/2010
3.247
3/19/2010
3.264
3/22/2010
3.223
3/23/2010
3.236
3/24/2010
3.409
3/25/2010
3.436
3/26/2010
3.402
3/29/2010
3.419
3/30/2010
3.412
3/31/2010
3.38
4/1/2010
3.418
4/2/2010
3.5
4/5/2010
3.546
4/6/2010
3.509
4/7/2010
3.41
4/8/2010
3.442
4/9/2010
3.437
4/12/2010
3.393
4/13/2010
3.37
4/14/2010
3.404
4/15/2010
3.37
4/16/2010
3.298
4/19/2010
3.334
4/20/2010
3.339
4/21/2010
3.279
4/22/2010
3.32
4/23/2010
3.367
4/26/2010
3.358
4/27/2010
3.23
4/28/2010
3.307
4/29/2010
3.261
4/30/2010
3.188

5/3/2010
5/4/2010
5/5/2010
5/6/2010
5/7/2010
5/10/2010
5/11/2010
5/12/2010
5/13/2010
5/14/2010
5/17/2010
5/18/2010
5/19/2010
5/20/2010
5/21/2010
5/24/2010
5/25/2010
5/26/2010
5/27/2010
5/28/2010
6/1/2010
6/2/2010
6/3/2010
6/4/2010
6/7/2010
6/8/2010
6/9/2010
6/10/2010
6/11/2010
6/14/2010
6/15/2010
6/16/2010
6/17/2010
6/18/2010
6/21/2010
6/22/2010
6/23/2010
6/24/2010
6/25/2010
6/28/2010
6/29/2010
6/30/2010
7/1/2010
7/2/2010
7/6/2010
7/7/2010
7/8/2010
7/9/2010

3.224
3.133
3.074
2.936
2.952
3.05
3.03
3.081
3.033
2.956
2.985
2.849
2.875
2.727
2.758
2.707
2.671
2.699
2.856
2.787
2.756
2.84
2.855
2.694
2.628
2.658
2.651
2.789
2.697
2.717
2.758
2.72
2.653
2.687
2.711
2.631
2.58
2.581
2.547
2.454
2.393
2.392
2.416
2.44
2.389
2.434
2.475
2.493

7/12/2010
7/13/2010
7/14/2010
7/15/2010
7/16/2010
7/19/2010
7/20/2010
7/21/2010
7/22/2010
7/23/2010
7/26/2010
7/27/2010
7/28/2010
7/29/2010
7/30/2010
8/2/2010
8/3/2010
8/4/2010
8/5/2010
8/6/2010
8/9/2010
8/10/2010
8/11/2010
8/12/2010
8/13/2010
8/16/2010
8/17/2010
8/18/2010
8/19/2010
8/20/2010
8/23/2010
8/24/2010
8/25/2010
8/26/2010
8/27/2010
8/30/2010
8/31/2010
9/1/2010
9/2/2010
9/3/2010
9/7/2010
9/8/2010
9/9/2010
9/10/2010
9/13/2010
9/14/2010
9/15/2010
9/16/2010

2.488
2.551
2.461
2.408
2.319
2.351
2.348
2.286
2.334
2.395
2.386
2.442
2.367
2.329
2.26
2.307
2.237
2.28
2.235
2.153
2.163
2.085
2.02
2.062
2.019
1.941
2.007
2.008
1.984
2.04
2.005
1.909
1.971
1.932
2.078
1.956
1.911
2.015
2.054
2.136
2.028
2.082
2.182
2.213
2.159
2.1
2.123
2.16

9/17/2010
9/20/2010
9/21/2010
9/22/2010
9/23/2010
9/24/2010
9/27/2010
9/28/2010
9/29/2010
9/30/2010
10/1/2010
10/4/2010
10/5/2010
10/6/2010
10/7/2010
10/8/2010
10/11/2010
10/12/2010
10/13/2010
10/14/2010
10/15/2010
10/18/2010
10/19/2010
10/20/2010
10/21/2010
10/22/2010
10/25/2010
10/26/2010
10/27/2010
10/28/2010
10/29/2010
11/1/2010
11/2/2010
11/3/2010
11/4/2010
11/5/2010
11/8/2010
11/9/2010
11/10/2010
11/11/2010
11/12/2010
11/15/2010
11/16/2010
11/17/2010
11/18/2010
11/19/2010
11/22/2010
11/23/2010

2.129
2.095
1.962
1.954
1.941
1.986
1.905
1.846
1.869
1.873
1.868
1.831
1.806
1.747
1.731
1.728
1.728
1.764
1.746
1.827
1.872
1.809
1.79
1.792
1.843
1.86
1.879
1.964
2.04
1.947
1.879
1.896
1.858
1.802
1.71
1.749
1.755
1.872
1.815
1.837
1.978
2.15
2.082
2.114
2.159
2.165
2.068
2.043

11/24/2010
11/26/2010
11/29/2010
11/30/2010
12/1/2010
12/2/2010
12/3/2010
12/6/2010
12/7/2010
12/8/2010
12/9/2010
12/10/2010
12/13/2010
12/14/2010
12/15/2010
12/16/2010
12/17/2010
12/20/2010
12/21/2010
12/22/2010
12/23/2010
12/27/2010
12/28/2010
12/29/2010
12/30/2010
12/31/2010
1/3/2011
1/4/2011
1/5/2011
1/6/2011
1/7/2011

2.181
2.147
2.112
2.091
2.265
2.305
2.28
2.195
2.431
2.565
2.534
2.645
2.555
2.766
2.813
2.711
2.612
2.628
2.599
2.66
2.727
2.66
2.802
2.64
2.668
2.614
2.627
2.62
2.759
2.676
2.586

series with CTD yield and with relevant futures prices

Yield change
Date
5.125% May-16 Yie1D Yield Change
3/1/2010
113.125
-0.007
3/2/2010
112.953125 -0.171875
0.002
3/3/2010
112.96875 0.015625
-0.018
3/4/2010
113.15625
0.1875
0.072
3/5/2010
112.6875 -0.46875
0.04
3/8/2010
112.5625
-0.125
-0.03
3/9/2010
112.796875 0.234375
0.025
3/10/2010
112.609375
-0.1875
0.013
3/11/2010
112.515625 -0.09375
-0.023
3/12/2010
112.484375 -0.03125
-0.007
3/15/2010
112.453125 -0.03125
-0.054
3/16/2010
112.953125
0.5
-0.007
3/17/2010
112.953125
0
0.042
3/18/2010
112.828125
-0.125
0.017
3/19/2010
112.65625 -0.171875
-0.041
3/22/2010
112.96875
0.3125
0.013
3/23/2010
112.96875
0
0.173
3/24/2010
111.78125
-1.1875
0.027
3/25/2010
111.234375 -0.546875
-0.034
3/26/2010
111.59375 0.359375
0.017
3/29/2010
111.578125 -0.015625
-0.007
3/30/2010
111.578125
0
-0.032
3/31/2010
111.9375 0.359375
0.038
4/1/2010
111.765625 -0.171875
0.082
4/2/2010
111.03125 -0.734375
0.046
4/5/2010
110.640625 -0.390625
-0.037
4/6/2010
110.859375 0.21875
-0.099
4/7/2010
111.75 0.890625
0.032
4/8/2010
111.546875 -0.203125
-0.005
4/9/2010
111.640625 0.09375
-0.044
4/12/2010
112.03125 0.390625
-0.023
4/13/2010
112.40625
0.375
0.034
4/14/2010
112.109375 -0.296875
-0.034
4/15/2010
112.21875 0.109375
-0.072
4/16/2010
112.953125 0.734375
0.036
4/19/2010
112.625 -0.328125
0.005
4/20/2010
112.59375 -0.03125
-0.06
4/21/2010
113.0625 0.46875
0.041
4/22/2010
112.703125 -0.359375
0.047
4/23/2010
112.28125 -0.421875
-0.009
4/26/2010
112.40625
0.125
-0.128
4/27/2010
113.625 1.21875
0.077
4/28/2010
112.921875 -0.703125
-0.046
4/29/2010
113.40625 0.484375
-0.073
4/30/2010
113.75 0.34375

f(x) = - 7.3435144586x + 0.01

R = 0.906309358

-0.2

-0.15

-0.1

-0.

0.036
-0.091
-0.059
-0.138
0.016
0.098
-0.02
0.051
-0.048
-0.077
0.029
-0.136
0.026
-0.148
0.031
-0.051
-0.036
0.028
0.157
-0.069
-0.031
0.084
0.015
-0.161
-0.066
0.03
-0.007
0.138
-0.092
0.02
0.041
-0.038
-0.067
0.034
0.024
-0.08
-0.051
0.001
-0.034
-0.093
-0.061
-0.001
0.024
0.024
-0.051
0.045
0.041
0.018

5/3/2010
5/4/2010
5/5/2010
5/6/2010
5/7/2010
5/10/2010
5/11/2010
5/12/2010
5/13/2010
5/14/2010
5/17/2010
5/18/2010
5/19/2010
5/20/2010
5/21/2010
5/24/2010
5/25/2010
5/26/2010
5/27/2010
5/28/2010
6/1/2010
6/2/2010
6/3/2010
6/4/2010
6/7/2010
6/8/2010
6/9/2010
6/10/2010
6/11/2010
6/14/2010
6/15/2010
6/16/2010
6/17/2010
6/18/2010
6/21/2010
6/22/2010
6/23/2010
6/24/2010
6/25/2010
6/28/2010
6/29/2010
6/30/2010
7/1/2010
7/2/2010
7/6/2010
7/7/2010
7/8/2010
7/9/2010

113.296875
113.984375
114.53125
115.96875
115.671875
114.890625
115
114.78125
114.90625
115.828125
115.640625
116.28125
116.375
116.96875
116.96875
116.84375
117.5
116.9375
116.125
116.5
116.515625
116.171875
115.953125
117.359375
117.5
117.71875
117.578125
116.5625
117.421875
116.953125
116.65625
116.828125
117.484375
117.203125
117.0625
117.75
118.203125
118.171875
118.34375
118.96875
119.84375
119.984375
120.0625
119.765625
120.1875
119.890625
119.609375
119.375

-0.453125
0.6875
0.546875
1.4375
-0.296875
-0.78125
0.109375
-0.21875
0.125
0.921875
-0.1875
0.640625
0.09375
0.59375
0
-0.125
0.65625
-0.5625
-0.8125
0.375
0.015625
-0.34375
-0.21875
1.40625
0.140625
0.21875
-0.140625
-1.015625
0.859375
-0.46875
-0.296875
0.171875
0.65625
-0.28125
-0.140625
0.6875
0.453125
-0.03125
0.171875
0.625
0.875
0.140625
0.078125
-0.296875
0.421875
-0.296875
-0.28125
-0.234375

-0.005
0.063
-0.09
-0.053
-0.089
0.032
-0.003
-0.062
0.048
0.061
-0.009
0.056
-0.075
-0.038
-0.069
0.047
-0.07
0.043
-0.045
-0.082
0.01
-0.078
-0.065
0.042
-0.043
-0.078
0.066
0.001
-0.024
0.056
-0.035
-0.096
0.062
-0.039
0.146
-0.122
-0.045
0.104
0.039
0.082
-0.108
0.054
0.1
0.031
-0.054
-0.059
0.023
0.037

7/12/2010
7/13/2010
7/14/2010
7/15/2010
7/16/2010
7/19/2010
7/20/2010
7/21/2010
7/22/2010
7/23/2010
7/26/2010
7/27/2010
7/28/2010
7/29/2010
7/30/2010
8/2/2010
8/3/2010
8/4/2010
8/5/2010
8/6/2010
8/9/2010
8/10/2010
8/11/2010
8/12/2010
8/13/2010
8/16/2010
8/17/2010
8/18/2010
8/19/2010
8/20/2010
8/23/2010
8/24/2010
8/25/2010
8/26/2010
8/27/2010
8/30/2010
8/31/2010
9/1/2010
9/2/2010
9/3/2010
9/7/2010
9/8/2010
9/9/2010
9/10/2010
9/13/2010
9/14/2010
9/15/2010
9/16/2010

119.640625
119.1875
119.875
120.5
120.9375
120.78125
121.109375
121.421875
121.09375
120.59375
120.640625
120.21875
120.734375
121
121.765625
121.34375
121.953125
121.609375
121.890625
122.625
122.578125
123.09375
123.78125
123.5
123.8125
124.484375
124.015625
123.96875
124.296875
123.875
124.0625
124.90625
124.421875
124.734375
123.671875
124.609375
124.96875
124.140625
123.890625
123.359375
124.1875
123.75
122.921875
122.6875
123.203125
123.734375
123.484375
123.203125

0.265625
-0.453125
0.6875
0.625
0.4375
-0.15625
0.328125
0.3125
-0.328125
-0.5
0.046875
-0.421875
0.515625
0.265625
0.765625
-0.421875
0.609375
-0.34375
0.28125
0.734375
-0.046875
0.515625
0.6875
-0.28125
0.3125
0.671875
-0.46875
-0.046875
0.328125
-0.421875
0.1875
0.84375
-0.484375
0.3125
-1.0625
0.9375
0.359375
-0.828125
-0.25
-0.53125
0.828125
-0.4375
-0.828125
-0.234375
0.515625
0.53125
-0.25
-0.28125

-0.031
-0.034
-0.133
-0.008
-0.013
0.045
-0.081
-0.059
0.023
0.004
-0.005
-0.037
-0.025
-0.059
-0.016
-0.003
0
0.036
-0.018
0.081
0.045
-0.063
-0.019
0.002
0.051
0.017
0.019
0.085
0.076
-0.093
-0.068
0.017
-0.038
-0.056
-0.092
0.039
0.006
0.117
-0.057
0.022
0.141
0.172
-0.068
0.032
0.045
0.006
-0.097
-0.025

9/17/2010
9/20/2010
9/21/2010
9/22/2010
9/23/2010
9/24/2010
9/27/2010
9/28/2010
9/29/2010
9/30/2010
10/1/2010
10/4/2010
10/5/2010
10/6/2010
10/7/2010
10/8/2010
10/11/2010
10/12/2010
10/13/2010
10/14/2010
10/15/2010
10/18/2010
10/19/2010
10/20/2010
10/21/2010
10/22/2010
10/25/2010
10/26/2010
10/27/2010
10/28/2010
10/29/2010
11/1/2010
11/2/2010
11/3/2010
11/4/2010
11/5/2010
11/8/2010
11/9/2010
11/10/2010
11/11/2010
11/12/2010
11/15/2010
11/16/2010
11/17/2010
11/18/2010
11/19/2010
11/22/2010
11/23/2010

123.4375
123.703125
124.703125
124.90625
124.921875
124.59375
125.359375
125.859375
125.5625
125.453125
125.484375
125.890625
126.046875
126.515625
126.578125
126.765625
126.890625
126.5
126.640625
126.03125
125.53125
126.21875
126.359375
126.359375
125.9375
125.6875
125.703125
124.96875
124.4375
125.078125
125.5
125.5
125.75
125.8125
126.96875
126.5625
126.5
125.640625
126.109375
125.59375
124.984375
123.765625
124.0625
123.890625
123.484375
123.53125
124.171875
124.53125

0.234375
0.265625
1
0.203125
0.015625
-0.328125
0.765625
0.5
-0.296875
-0.109375
0.03125
0.40625
0.15625
0.46875
0.0625
0.1875
0.125
-0.390625
0.140625
-0.609375
-0.5
0.6875
0.140625
0
-0.421875
-0.25
0.015625
-0.734375
-0.53125
0.640625
0.421875
0
0.25
0.0625
1.15625
-0.40625
-0.0625
-0.859375
0.46875
-0.515625
-0.609375
-1.21875
0.296875
-0.171875
-0.40625
0.046875
0.640625
0.359375

0.138
-0.034
-0.035
-0.021
0.174
0.04
-0.025
-0.085
0.236
0.134
-0.031
0.111
-0.09
0.211
0.047
-0.102
-0.099
0.016
-0.029
0.061
0.067
-0.067
0.142
-0.162
0.028
-0.054
0.013
-0.007
0.139
-0.083
-0.09

11/24/2010
11/26/2010
11/29/2010
11/30/2010
12/1/2010
12/2/2010
12/3/2010
12/6/2010
12/7/2010
12/8/2010
12/9/2010
12/10/2010
12/13/2010
12/14/2010
12/15/2010
12/16/2010
12/17/2010
12/20/2010
12/21/2010
12/22/2010
12/23/2010
12/27/2010
12/28/2010
12/29/2010
12/30/2010
12/31/2010
1/3/2011
1/4/2011
1/5/2011
1/6/2011
1/7/2011

123.34375
123.65625
123.921875
124.109375
122.828125
122.4375
122.625
123.328125
121.390625
120.796875
120.765625
120.21875
120.65625
119.28125
118.90625
119.21875
120.25
120.078125
120.234375
120
119.59375
119.9375
119.03125
120.25
119.984375
120.4375
120.171875
120.3125
119.234375
119.8125
120.671875

-1.1875
0.3125
0.265625
0.1875
-1.28125
-0.390625
0.1875
0.703125
-1.9375
-0.59375
-0.03125
-0.546875
0.4375
-1.375
-0.375
0.3125
1.03125
-0.171875
0.15625
-0.234375
-0.40625
0.34375
-0.90625
1.21875
-0.265625
0.453125
-0.265625
0.140625
-1.078125
0.578125
0.859375

= - 7.3435144586x + 0.0139054824
2
= 0.906309358
1.5

.2

1
0.5
0
-0.15

-0.1

-0.05

-0.5
-1
-1.5
-2
-2.5

0.05

0.1

0.15

0.2

0.25

0.3

Setting up a matched-maturity swap spread trade

Today

11/9/2016

Treasury Bond:
Notional ($ mn)
Coupon
Maturity
Yield

Swap:
100
2.50%
2/15/2015
2.00%

Price
Mod. Dur

Err:502
Err:502

DV01 ($/mn)

Err:502

Matched Mat. Swap Spread (bp)

Swap Notional ($ mn)

25
Err:502

Err:502
Err:502

Maturity
Yield

2/15/2015
2.25%

Mod. Dur

Err:502

DV01 ($/mn)

Err:502

Table 11.1 - Base case scenario for a Treasury futures contract with three deliverable bonds

Base Case Scenario

Contract
Last Deliv
Tsy Repo
Yld shift (bp)

Sep 10Y
9/30/2010
0.22
0.00
Coupon
Bond1
6.000
Bond2
6.125
Bond3
4.375
Futures Px
127.43
* Highlighted bond indicates CTD bond

Maturity
2/15/2026
8/15/2029
5/15/2040

Yrs to Mat
15.5
19.0
29.8

Duration
10.8
12.3
16.8

Yield
3.614
3.772
4.018

Curr Price
128.12
131.71
106.16

Carry
22.5
23.0
16.3

Duration
10.4
11.8
15.6

Yield
4.614
4.772
5.018

Curr Price
115.22
116.78
90.11

Carry
22.7
23.1
16.5

-40
0.0
87.2
315.2

-20
0.0
72.0
262.9

0
0.0
57.6
214.3

Table 11.2 - Treasury futures contract basket for a yield shift higher

Higher Yield Scenario

Contract
Last Deliv
Tsy Repo
Yld shift (bp)

Sep 10Y
9/30/2010
0.22
100
Coupon
Bond1
6.000
Bond2
6.125
Bond3
4.375
Futures Px
114.48
* Highlighted bond indicates CTD bond

Table 11.3
Bond1
Bond2
Bond3

Base Yield
3.614
3.772
4.018

Maturity
2/15/2026
8/15/2029
5/15/2040

Yrs to Mat
15.5
19.0
29.8

Net bases for parallel yield shifts (bps)

-100
-80
-60
0.0
0.0
0.0
139.2
120.8
103.5
498.1
432.6
371.7

Yields
Bond1
Bond2
Bond3
Spot prices
Bond1
Bond2
Bond3
Carry
Bond1
Bond2
Bond3
Fwd Price/CF

Bond1
Bond2
Bond3

Yield shifts (bps)

Starting Yield
-100
3.614
2.614
3.772
2.772
4.018
3.018

-80
2.814
2.972
3.218

-60
3.014
3.172
3.418

-40
3.214
3.372
3.618

-20
3.414
3.572
3.818

0
3.614
3.772
4.018

Yield shifts (bps)

Starting Yield
-100
3.614
142.92
3.772
149.26
4.018
126.51

-80
139.79
145.52
122.04

-60
136.75
141.89
117.78

-40
133.80
138.39
113.72

-20
130.92
134.99
109.85

0
128.12
131.71
106.16

Yield shifts (bps)

Starting Yield
-100
3.614
22.4
3.772
22.9
4.018
16.1

-80
22.4
22.9
16.2

-60
22.5
22.9
16.2

-40
22.5
22.9
16.3

-20
22.5
23.0
16.3

0
22.5
23.0
16.3

Yield shifts (bps)

Futures Px
142.2
Starting Yield
-100
3.614
142.2
3.772
146.5
4.018
162.3

139.1
-80
139.1
142.8
156.5

136.1
-60
136.1
139.3
151.0

133.1
-40
133.1
135.8
145.8

130.2
-20
130.2
132.4
140.8

127.4
0
127.4
129.2
136.1

281.4

301.4

321.4

341.4

361.4

Bond1 Yld

261.4

able bonds

Fwd Price
127.42
130.99
105.65

C. Factor
0.9999
1.0138
0.7765

Fwd Price/Factor
127.43
129.21
136.06

Gross Basis
23
81
231

BNOC
0.0
57.6
214.3

Fwd Price
114.52
116.05
89.60

C. Factor
0.9999
1.0138
0.7765

Fwd Price/Factor
114.53
114.48
115.39

Gross Basis
24.4
23.1
39.1

BNOC
1.7
0.0
22.7

40
0.0
31.5
127.9

60
0.0
19.7
89.5

20
0.0
44.1
169.4

80
0.0
8.6
54.0

100
1.7
0.0
22.7

120
11.3
0.0
0.0

140
46.9
27.2
0.0

20
3.814
3.972
4.218

40
4.014
4.172
4.418

60
4.214
4.372
4.618

80
4.414
4.572
4.818

100
4.614
4.772
5.018

120
4.814
4.972
5.218

140
5.014
5.172
5.418

20
125.40
128.53
102.64

40
122.75
125.45
99.29

60
120.17
122.46
96.08

80
117.67
119.58
93.03

100
115.22
116.78
90.11

120
112.85
114.07
87.33

140
110.54
111.44
84.67

20
22.6
23.0
16.4

40
22.6
23.1
16.4

60
22.6
23.1
16.4

80
22.6
23.1
16.4

100
22.7
23.1
16.5

120
22.7
23.2
16.5

140
22.7
23.2
16.5

124.7
20
124.7
126.1
131.5

122.1
40
122.1
123.0
127.2

119.5
60
119.5
120.1
123.1

117.0
80
117.0
117.2
119.1

114.5
100
114.5
114.5
115.4

111.8
120
112.2
111.8
111.8

108.4
140
109.8
109.2
108.4

381.4

401.4

421.4

441.4

461.4

481.4

501.4

Figure 11.1 - Net bases for three bonds in a basket for different yiel
8/16/2010

600.0

Bond1 (low du

500.0

Bond2 (mediu
duration)

400.0

Bond3 (high d

300.0
200.0
100.0
0.0
-100.0
-100 -80

-60

-40

-20

20

40 60 80
Yield shift (bp)

100 12

Figure 11.2 - Bond and futures prices for different yield shifts
170.0
160.0
150.0
140.0
130.0
120.0
110.0
100.0
90.0
200

180

160

140

120

100

80

60

40

20

-20

-40

80.0
-60

200
137.2
95.2
0.0

-80

180
109.7
74.6
0.0

-100

160
79.7
52.0
0.0

Yield shift (bp)

Figure 11.3 - Futures price regressed on the yield of a bond in the b

150.0
140.0
130.0

f(x) = - 14.1x + 178.9

R = 1.0

120.0
110.0
100.0
90.0
80.0
2.5

3.5

4 Bond14.5
yield; % 5

5.5

100.0
90.0

160
5.214
5.372
5.618

180
5.414
5.572
5.818

80.0
2.5

220
5.814
5.972
6.218

240
6.014
6.172
6.418

200
5.614
5.772
6.018

3.5

4 Bond14.5
yield; % 5

260
6.214
6.372
6.618

280
6.414
6.572
6.818

5.5

300
6.614
6.772
7.018

160
108.29
108.90
82.12

180
106.09
106.43
79.69

200
103.96
104.04
77.37

220
101.88
101.72
75.15

240
99.86
99.48
73.02

260
97.89
97.30
70.98

280
95.97
95.19
69.04

300
94.10
93.14
67.17

160
22.7
23.2
16.5

180
22.7
23.2
16.6

200
22.8
23.2
16.6

220
22.8
23.3
16.6

240
22.8
23.3
16.6

260
22.8
23.3
16.6

280
22.8
23.3
16.7

300
22.8
23.3
16.7

105.1
160
107.6
106.7
105.1

102.0
180
105.4
104.3
102.0

99.0
200
103.3
101.9
99.0

96.1
220
101.2
99.6
96.1

93.4
240
99.2
97.4
93.4

90.7
260
97.2
95.3
90.7

88.2
280
95.3
93.2
88.2

85.8
300
93.4
91.2
85.8

521.4

541.4

561.4

581.4

601.4

621.4

641.4

661.4

ket for different yield shifts

Bond1 (low duration)

Bond2 (medium
duration)
Bond3 (high duration)

0 60 80
d shift (bp)

100 120 140 160 180 200

nt yield shifts

300

280

260

240

220

200

180

160

140

120

100

Bond1
Price
Bond2
Price
Bond3
Price

p)

ld of a bond in the basket

% 5

5.5

6.5

% 5

5.5

6.5

320
6.814
6.972
7.218

340
7.014
7.172
7.418

360
7.214
7.372
7.618

320
92.28
91.16
65.38

340
90.51
89.23
63.67

360
88.78
87.36
62.02

320
22.9
23.4
16.7

340
22.9
23.4
16.7

360
22.9
23.4
16.7

83.5
320
91.6
89.2
83.5

81.3
340
89.8
87.3
81.3

79.2
360
88.1
85.4
79.2

Basic Black-Scholes pricer (uses lognormal distribution for underlying):

Underlying (S)
Strike (X)
Interest rate (r )
Carry cost (b)
Time to exp (T; yrs)
Volatility (v; %/yr)
D1
D2
Call price
Put price
Call price
Put price

97
98
1%
0%
2.5
10%
0.0142
-0.1439
S * Exp((b - r) * T) * NORMSDIST(d1) - x * Exp(-r * T) * NORMSDIST(d2)
x * Exp(-r * T) * NORMSDIST(-d2) - S * Exp((b - r) * T) * NORMSDIST(-d1)
5.52
6.49

RMSDIST(d2)
ORMSDIST(-d1)

Basic Bachelier model pricer (uses normal distribution for underlying):

Underlying (S)
Strike (X)
Interest rate (r )
Carry cost (b)
Time to exp (T; yrs)
Volatility (v; abs chg/yr)
D1
Normal density
Call price
Put price
Call price
Put price

97
98
1%
0%
2.5
5
-0.1265
0.1579
(S - x) * NORMSDIST(d1) + v * Sqr(T) * NORMDENSITY(d1)
(x - S) * NORMSDIST(-d1) + v * Sqr(T) * NORMDENSITY(d1)
0.7985
1.7985