When the price of CTD = the price of futures?
deriv108 Wrote: ------------------------------------------------------- > When the price of CTD = the price of futures? Then you still divide by the price of the CTD bond and there is no conversion factor to divide by in the denominator. (Duration of CTD Bond)(Price of CTD Bond) As opposed to (Duration of Futures)(Price of Futures)/Conversion factor of CTD to futures. Using futures is equivalent to making a normal trade in that the dollar duration of the new portfolio has to equal the target dollar duration. You can get there synthetically or via cash securities. In the end the portfolio is made to match the dollar duration, not the duration.
Notes taken…Thanks, Paraguay.