Can someone explain qualitatively why dollar duration for a long position in futures is > 0 while a short position is < 0…? thanks, bn
The value of a long position on an interest rate future decreases as interest rates increase and vice versa when interest rates decrease. So a long position has a positive duration just like holding the bond.
A long position moves in the same direction as the underlying, thus positive duration A short position moves in the opposite direction as the underlying, thus negative duration
mo34 - True only if we are talking about interest rate futures but the question is more general. bigwilly - Who says corn and interest rates move in the same direction? Forget futures contracts and just look at forwards contracts. A forward contract at any time is worth (F - K) * e^-(r*T) where T = time to expiration, F = current forward price, K= original price. That means a forward contract is a lot like a zero with par value (F-K) which gives the result for forwards. Futures you just have to be a little careful with marked to market margin deposits to get the same result.
JD - I do 