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The Journal of Fixed Income

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Primary Article

Duration–Based Hedging with Treasury Bond Futures

Richard J. Rendleman
The Journal of Fixed Income Summer 1999, 9 (1) 84-91; DOI: https://doi.org/10.3905/jfi.1999.319233
Richard J. Rendleman Jr
Professor of finance at the Kenan–Flagler Business School of the University of North Carolina, Chapel Hill.
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Abstract

A survey of derivatives textbooks and other documents shows at east four different treatments of duration-based hedging with Treasury bond futures. Most hedging methods also employ an incorrect definition of futures duration, and, in some cases, apply the accrued interest pricing method incorrectly This article develops an alternative model that is mathematically identical to the most frequently advocated hedging formula and helps to reconcile the various approaches to hedging. It also demonstrates a potential maturity mismatch problem that can represent 10% or more of a typical hedging quantity.

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The Journal of Fixed Income
Vol. 9, Issue 1
Summer 1999
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Duration–Based Hedging with Treasury Bond Futures
Richard J. Rendleman
The Journal of Fixed Income Jun 1999, 9 (1) 84-91; DOI: 10.3905/jfi.1999.319233

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Duration–Based Hedging with Treasury Bond Futures
Richard J. Rendleman
The Journal of Fixed Income Jun 1999, 9 (1) 84-91; DOI: 10.3905/jfi.1999.319233
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