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Article: Examining duration, 'hedge ratio,' and basis risk to hedge securities. (risk management in futures trading) (includes related information)
- Article from:
- Futures (Cedar Falls, IA)
- Article date:
- May 1, 1989
- Author:
CopyrightCOPYRIGHT 1989 Summit Business Media. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Examining duration, `hedge ratio,' and basis risk to hedge securities
Hedging with futures is simple: long a cash security, sell futures. Any loss (profit) in the cash market should be offset by a profit (loss) in futures.
In practice, things are more complicated. It is often difficult to assess the degree to which the movements in the price of the security you wish to hedge is paralleled in futures.
Examining duration, the "hedge ratio" and basis risk can help, as the following look at the Treasury bond futures market shows.
Central to any risk management program is a measure of risk. Many portfolio managers assess risk by reference to ...