# yield beta in hedge ratio

is it correct to say that yield beta is only used in calculating hedge ratio, but not in calculating # of contracts to hedge? Hedge ratio = DD of portfolio/ DD of CTD * conversion factor * yield beta # of contracts to hedge = (target DD - DD of portfolio)/DD of CTD * conversion factor If yes, why is yeld beta not factored in when calculating the # of contracts to hedge?

any insights?

> If yes, why is yeld beta not factored in when > calculating the # of contracts to hedge? It does if you want to use yield beta, so the modified formula is # of contracts to hedge = (target DD - DD of portfolio)/DD of CTD * conversion factor* yield beta. See pg 343 v5

happyking02 Wrote: ------------------------------------------------------- > is it correct to say that yield beta is only used > in calculating hedge ratio, but not in calculating > # of contracts to hedge? > > Hedge ratio = DD of portfolio/ DD of CTD * > conversion factor * yield beta > # of contracts to hedge = (target DD - DD of > portfolio)/DD of CTD * conversion factor > > If yes, why is yeld beta not factored in when > calculating the # of contracts to hedge? the # of contract formula does include the Yld Beta, where are you getting your formula?

elcfa , thanks very much. It’s helpful. So this is the general formula: # of contracts to hedge = (target DD - DD of portfolio)/DD of CTD * conversion factor* yield beta When yield beta is assumed to be one, we get the special case formula like below: # of contracts to hedge = (target DD - DD of portfolio)/DD of CTD * conversion factor I just noticed that Vol 5, Page 343 is “optional segment”!!! to whystudy’s question, I got the formula of the original posting from Schweser book end formula. I have to say they didn’t do a good job on multiple ocassions. I believe it goes something like this: When yield beta is given, use it ! But yes, you would incorporate the yield beta into the formulas as mentioned above.

what is the intuition behind yield beta? Thanks!