In the CFA book it doesn’t explicitly say where the hedge ratio is in the formula on p. 83, but they say that the expression for the notional principal on a interest rate swap to close the gap to zero can be calculated as:
Asset BPV + [NP x (Swap BPV)/100] = Liability BPV.
Re-arranging the formula I got
NP = (Liability BPV - Asset BPV) (100/Swap BPV)
They say a hedge ratio = 100% indicates an attempt to fully immunize the assets and liabilities.
Is the hedge ratio in the above formula “100”? I calculated the example below the formula using 50 instead and got half the amount of the NP, but needed some confirmation.
Thanks in advance