A manager wishes to hedge a bond with a par
A manager wishes to hedge a bond with a par value of $20 million by selling Treasury bond futures. Suppose that (1) the conversion factor for the cheapest-to-deliver issue is 0.91, (2) the price value of a basis point of the cheapest-to-deliver issue at the settlement date is 0.06895, and (3) the price value of a basis point of the bond to be hedged is 0.05954.
Answer the below questions.
(a) What is the hedge ratio?
(b) How many Treasury bond futures contracts should be sold to hedge the bond?
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