Documentation

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:

$PVBPBond=\frac{Duration×MarketValue}{100}$

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

$PVBPFutures=\frac{PVBPCTDBond}{CTDConversionFactor}$

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.