yield beta VS conversion factor

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lawbringer

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I know the definition of these two things, but now really confused when to use them. Is that possible to use both of them together?
 
yes, if you have a CTD situation and trying to determine the # of futures with a FI question.
 
it is possible if you have futures on foreign treasuries which you want to add to your portfolio
 
I think yield beta is used when we use equities futures and conversion factors when we use Bond futures….
So they cant be used togethor accd to me ..
 
Hello the Edge.
I found this formula:
number of contracts = ( DD_t - DD_p ) / (DD_f )
where DD_f = DD_CTD / CTD conversion factor.
This one does not use yield beta. Just because the question does not mention it?
 
Oh, Edge, you are right. Thanks.
I find this formula:
To adjust the above formula (the one I posted 2:01 AM) above for fully hedging interest rate risk when yield spread is not constant, we must adjust the formula to incorporate the yield beta as follows:
hedge ratio = DD_p / DD_CTD × conversion factor for the CTD × yield beta
 
Yield Beta is used I believe, but most of the tiem it is assumed to be 1
 
lawbringer Wrote:
——————————————————-
> Oh, Edge, you are right. Thanks.
>
> I find this formula:
>
> To adjust the above formula (the one I posted 2:01
> AM) above for fully hedging interest rate risk
> when yield spread is not constant, we must adjust
> the formula to incorporate the yield beta as
> follows:
>
> hedge ratio = DD_p / DD_CTD × conversion factor
> for the CTD × yield beta
I wonder if anyone actually does that. That yield beta thing is full of error, the CTD bond changes and which bond is CTD depends on repo rates and then lots f points on he yield curve…
 
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