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Managing Present Value with Bond Futures

The Present Value of a Basis Point (PVBP) is used to manage interest-rate risk. PVBP is a measure that quantifies the change in price of a bond given a one-basis point shift in interest rates. The PVBP of a bond is computed with the following:

PVBPBond=Duration×MarketValue100

The PVBP of a bond futures contract can be computed with the following:

PVBPFutures=PVBPCTDBondCTDConversionFactor

Use bnddurp and bnddury from Financial Toolbox™ software to compute the modified durations of CTD bonds. For more information, see Managing Interest-Rate Risk with Bond Futures and Fitting the Diebold Li Model.

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