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Primary Article

Hedging and Replication of Fixed-Income Portfolios

Lev Dynkin, Jay Hyman and Peter Lindner
The Journal of Fixed Income Spring 2002, 11 (4) 43-63; DOI: https://doi.org/10.3905/jfi.2002.319311
Lev Dynkin
A managing director at Lehman Brothers in New York.
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  • For correspondence: ldynkin@lehman.com
Jay Hyman
A senior vice president at Lehman Brothers in Tel Aviv, Israel.
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  • For correspondence: jhyman@lehman.com
Peter Lindner
A vice president at Lehman Brothers in New York.
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  • For correspondence: lindner@lehman.com
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Abstract

This article discusses hedging and replication strategies based on Eurodollar futures, Treasury futures, and swaps for diversified fixed-income portfolios. Analytical and empirical hedge ratio approaches are empirically tested on a variety of fixed-income indexes. Tracking errors are found to have significantly increased since the middle of 1998. The optimal replication portfolios are generally found to be hybrid portfolios consisting of a combination of Treasury futures and Eurodollar futures and swaps at a long-term cost of between 4 and 12 basis points.

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The Journal of Fixed Income
Vol. 11, Issue 4
Spring 2002
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Hedging and Replication of Fixed-Income Portfolios
Lev Dynkin, Jay Hyman, Peter Lindner
The Journal of Fixed Income Mar 2002, 11 (4) 43-63; DOI: 10.3905/jfi.2002.319311

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Hedging and Replication of Fixed-Income Portfolios
Lev Dynkin, Jay Hyman, Peter Lindner
The Journal of Fixed Income Mar 2002, 11 (4) 43-63; DOI: 10.3905/jfi.2002.319311
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