Duration of Bond futures

[lzhao]

How to calculate it, say for 20-year T-bond, 8% coupon, priced at 114?
Thx!

 

[olivier]

In order to get effective duration, you need price when rates go up or down by a shock amount.
Or you can do dollar duration ; that is a weighted average of the timing of the cash flows.

 

[maratikus]

lzhao Wrote:
——————————————————-
> How to calculate it, say for 20-year T-bond, 8%
> coupon, priced at 114?
>
> Thx!
First calculate YTM of the bond using IRR function. Then choose a delta (for example, 20 bp = 0.2%), calculate bond price (as PV) for yield = YTM - delta, YTM+delta and calculate duration as (PV(YTM-delta)-PV(YTM+delta)/(2*delta*PV(YTM)). Obviously, PV(YTM)=114.

 

[lzhao]

Are you calculating the duration for the future priced at 114, underlying is 20-year bond with 8% coupon?

 

[bhaiyyu]

Yes. Duration changes with change in price (Convexity).

 

[maratikus]

I’m sorry I provided an algorithm to calculate duration of a bond, not a futures contract. I don’t think we have to know how to calculate duration of a futures contract, it’s enough to know that duration of a futures contract = duration of CTD bond/Conversion Factor of CTD bond.