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Forwards & Futures – Hedging (Part II)

The use of futures hedging for both short and long-term interest rate risks is extremely widespread. Of the five most liquid exchange-traded contracts in the world, the most actively traded futures contract was the Eurodollar contract quoted on the CME.

 

This course focuses on the hedging of interest rate risk, both for shorter-dated and longer-dated instruments. It examines the construction of hedges using bond and money market futures, and outlines some of the particular issues unique to these markets.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Identify the different long-term interest rate risks faced by market participants

    Explain how long-term interest rate risks can be managed, particularly through hedging using bond and swap futures

    Identify the different short-term interest rate related risks faced by market participants, and explain how these risks can be managed, either through OTC FRA transactions or through the use of money market futures contracts

  • COURSE OUTLINE

    Topic 1: Bond Futures

    A Typical Bond Futures Contract

    Conversion Factors (CFs)

    Cheapest-to-Deliver Bond

    Topic 2: Futures or Forwards

    Hedging with Bond Futures

    Regression Hedging

    Hedging a Swap Position

    Bond/Swap Basis Risk

    Swap Futures

    Topic 3: Short-Term Hedging

    Forward Rate Agreements (FRAs)

    Money Market Futures

    Strips & Stacks

    Convexity Adjustment

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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