Situation: A Using t-bond futures to either reduce or increase the dollar duration DD of a bond portfolio. The DD of the portfolio is -$2.0mn. You want to reduce the DD by $1mn Question: 1 Does selling futures increase the DD of the portfolio or does it reduce? 2 So, for the situtation above. Do you sell futures or buy futures? PS: This is in Schweser notes SS9
Selling Decreases Duration, so it decreases DD If you want to decrease Duration, sEll
just to be clear…you said the original question said the DD was negative 2 mn. If reducing DD by $1mn, meaning that you want your traget to be negative 3mn…SELL future.
Yeah if by “reduce” you mean Increase a Negative to be closer to 0, then you would Buy, but if you mean “reduce” as in a larger Negative or farther from 0, then Sell.
yeah, so if DD goes from -$2mn to -$3mn does it mean the DD went up or it went down?
Now that is a tricky question. I would say went Up in an Absolute term. Because if you are trying to Increase your Negative Duration you would go from -2 to -3.
formula to decide what to do = (old DD/newDD)-1 …sell. what question number is it in Schweser? i think that negative dollar duration means you are being short (otherwise you would have a positive number). so logics would be that you increase that sensitivity, increase the short.
i forgot what we decided from last year… negative delta going from -.5 to -.3 is this an increase or decrease?
I dont know…
Sorry that I brought this up…however, this is the exactly kind of wording that is going to kill me on the exam.
3rd & Long Wrote: ------------------------------------------------------- > i forgot what we decided from last year… negative > delta going from -.5 to -.3 is this an increase or > decrease? That is a decrease in DD. going from -0.5 to -0.3, the portolio is less senentive to the interest rate movement.
So WS you are viewing it on an Absolute basis. Good idea on the “less sensitive” view point as that makes it easier to discern an “increase” vs “decrease” whether it is negative or positive.
Yes. However, watch me get this wrong on the exam. I don’t know about you, when I take sample/practice/mock exam. My state of mind is completely different otherwise. Everything gets fogged up. …!
I get messed up staring at the screen versus being able to look down and cross out, etc.