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CHAPTER 17 Treasury Futures Contracts > Suggested Readings and References - Pg. 375

Suggested readings and references 375 or CF PVBP ( Futures Price ) PVBP ( Cheapest Deliverable Note ) 1 r T t . 360 Substituting equation into equation, we get the following hedge ratio, n : n CF PVBP ( Note to be hedged ) PVBP ( Cheapest Note ) 1 1 . T t r 360 (17.5) It is easy to verify that the PVBP of the 5.125% T-note is 730, and the PVBP of the cheapest deliverable note is 583. Using this information in Equation 17.5, we can determine the hedge ratio as follows: n 0 . 9335 730 583 1 1 0 . 0483 23 360 1 . 1653 . Note that the futures contract is on a $100,000 par amount. Therefore, to hedge $100 mil-