FRM Part I · FRM Exam Part I · Interest Rates
A bond portfolio worth USD 80 million has a DV01 of USD 48,000. A hedger uses a futures contract with DV01 of USD 120 per contract. The hedger instead wants to reduce the portfolio DV01 to USD 12,000 rather than eliminate it. How many futures contracts should be sold?
The hedger should sell 300 contracts. To cut DV01 from USD 48,000 to USD 12,000 requires removing USD 36,000 of DV01, and each contract short offsets USD 120, so 36,000 divided by 120 equals 300.
- A400 contracts
- B300 contractsCorrect
- C100 contracts
- D480 contracts
Explanation
DV01 reduction needed = 48,000 - 12,000 = 36,000. Contracts = 36,000 / 120 = 300. Using the full DV01 gives 400 (full hedge); 100 is the residual only.
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