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Effective Hedging of Mortgage Interest Rate Risk

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Abstract

Unfortunately, the hedging effectiveness of the GNMA futures market has been diminished by a lack of understanding of the selection of proper hedge ratios. This paper presents a derivation of the optimal hedge ratio for hedging interest rate risk with a GNMA futures contract. The hedge ratio is then applied to different hedging situations and the results of the traditional and newly derived hedging strategies are examined.

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1982-01-01

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mortgages; futures; market; treasury bills; GNMA; hedging

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Government Document

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Required Publisher Statement: Copyright held by the authors. Reprinted with permission. All rights reserved.

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