# Reasoning behind dividing Swap BPV by 100

Dear all,

The formulas for hedging liabilities with futures and swaps are almost similar, except Swap BPV to be divided by 100. Can anyone explain me the reasoning (logic) behind this difference?

For futures: Asset portfolio BPV + (*N _{f}* × Futures BPV) = Liability portfolio BPV

For swaps: Asset BPV+[NP×SwapBPV/__100__]=Liability BPV

Thanks

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I have no idea.

I’ll e-mail CFA Institute and ask.

Simplify the complicated side; don't complify the simplicated side.

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Believe this simply relates to market quoting convention; the BPV of a swap is referenced per 100 units of notional, whereas the asset and liability BPVs are referenced per 1 unit of notional.

If so, it would certainly be nice for the curriculum to say so, for those candidates unfamiliar with (weird) market quoting conventions.

Simplify the complicated side; don't complify the simplicated side.

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I certainly can’t argue with you on that one. I’ll be interested to hear how they respond to you on this - based on the OP’s question is definitely seems like the text would benefit from the addition of a simple explanatory paragraph.

I heard back from CFA Institute.

They said that the one formula was for computing the number of (futures) contracts, while the other was for computing the notional value (of a swap).

I agreed, but stressed that that didn’t really explain the difference in divisors, as they’re both computing basis point values. I asked for clarification, and mentioned that the question had already been asked here.

Stay tuned.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams

http://financialexamhelp123.com/

Are you just emailing them with the generic info@cfainstitute.org ? I assumed the customer service people dont have a clue about these things.

I am.

They (presumably) pass this stuff along to the folks in the know.

I’ve always had success doing it this way. Well, success in the sense of it getting to people who can discuss it, but not necessarily success in the sense of them agreeing that I’m right.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams

http://financialexamhelp123.com/