Hedging Bonds

Lecture Notes

Lab 4

Notes added to lab 4 and discussion which delves into the analytic part establishing the connection between the two.

Futures/Forwards

Futures are less flexible because they are standardized, and you have to announce the price constantly because you’re on the open market.

The forward contract you sleep for a year, wake up, and they honor an agreement.

Hedging Bonds

The $𝛽$ on bonds is the duration.

If we zoom in very far, we can see the earth is flat and get the slope (derivative).

As rates go up, bond prices go down.