An immunization strategy for futures contracts on government securities

Abstract

inancial futures markets provide vehicles for the transfer of interest rate risks.F It is important from a public policy perspective, and presumably from the perspective of most market participants, that the interest rate risks are reasonabIy understood and potentially controllable. Substantial effort has been devoted towards the development of hedging and immunization strategies to reduce and to control interest rate risks.The purpose of this study is to extend a previously formulated immunization strategy for bonds into an immunization strategy for futures contracts on U.S. Government securities. The bond immunization strategy appears rather successful in reducing and virtually eliminating interest rate risks for US. Treasury notes. This study demonstrates that the immunization strategy is tractable in the case of futures contracts but does not perform an empirical test.

Managing non‐parallel shift risk of yield curve with interest rate futures

“…Note that the more dispersed the bond portfolio's cash flows, the greater the value of (C -mD). Therefore, the holding amount I3The idea of using multiple kinds of futures contracts to hedge interest rate risk can be found in Hilliard (1984) and Chambers (1984). Chambers (1981) developed a vector of risk measures called duration vector which permits interest rate risk control for a two or more factor term structure behavior.…”