we learned the duration of future = duration of CTD/conversion factor. However, the question didn’t tell you the future price, but CTD price. should we still need consider the conversion factor to calculate the future number needed? I clearly remember the notional of the future is 100,000 and the CTD price is 102 something. My concern is whether the price of the future = CTD price / conversion factor. not sure I totally understand conversion factor. can anybody give some elaboration?
you are right in your equation
jimmyswo Wrote: ------------------------------------------------------- > you are right in your equation which equation? the first or the second one for future price? If the second one is correct, then the number of future = (target duration - current duration) VP / duration of CTD * price of CTD * notional? conversion factor should be dropped?
I got 109 for this one. What’s your answer?
agreed. drop conversion factor since you’ve got duration/price of the CTD bond itself, not the theoretical 6% face par bond…
sf631 Wrote: ------------------------------------------------------- > agreed. drop conversion factor since you’ve got > duration/price of the CTD bond itself, not the > theoretical 6% face par bond… Take a look at this year’s mock exam. You don’t drop the CTD, the duration given was the duration of the CTD bond.
NYC9 Wrote: ------------------------------------------------------- > I got 109 for this one. What’s your answer? me too. hope that was correct
Was this the one with the leveraged portfolio? If so, which value did you take: value of total investments in the portfolio, or value of portfolio equity. The durations that they gave were the leveraged durations, so I’m leaning towards the net portfolio value (equity). I think it was 75million in bonds, with equity of 50million.
I believe I had 109 too. Hopefully that’s the right one.
got 109, but took me a bit longer to get there than it should have
i hedged using the leveraged value.
I also hedged using leveraged value. Change duration from 7.2 to 6, notional principal of 75 million, I don’t exactly remember the value of conversion factor and the duration of CTD. However, I using these figures I was not getting any of the three answers, so I divided by the the price/100 of the CTD 1.03 something. It matched with one of the options, I don’t exactly reacll whether it was 109 or 79…but something with 9.
Hate guessing but this is one of the few I ought to
NYC9 Wrote: ------------------------------------------------------- > I got 109 for this one. What’s your answer? I couldn’t remember the exact number, but I recall that choice B is considering the conversion factor, and the other one (C?) is not. do you remember which choice of 109 is?
you use the conversion factor when the duration and the price of the CTD was given only. if it was the duration and the price of the futures, yes you are not supposed to use CF. btw the price of CTD was 113.26% of the par i guess and yes it was the leveraged portfolio.
should we use either CTD duration and CTD price or future duration (CTD duration/ conversion factor) and future price?
did you for this one divide a price of 113k$ ro whatever by ctd/conversion factor
NYC9 Wrote: ------------------------------------------------------- > I got 109 for this one. What’s your answer? Same here
The formula is (Target $D - Current $D) / (future $D) the denominator of the formula is DOLLAR DURATION OF ONE FUTURE CONTRACT = DOLLAR DURATION of CTD / Conversion Factor = (Price of CTD X Duration of CTD) / Conversion Factor You don’t drop the conversion factor.
Impermenance, are you sure? although I used the formula you provided below, I am very concerned that we should drop the conversion factor because we are using price of CTD instead of price of future. Impermenance Wrote: ------------------------------------------------------- > The formula is (Target $D - Current $D) / > (future $D) > > the denominator of the formula is DOLLAR DURATION > OF ONE FUTURE CONTRACT > > = DOLLAR DURATION of CTD / Conversion Factor > > = (Price of CTD X Duration of CTD) / Conversion > Factor > > You don’t drop the conversion factor.