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Hi, I am comparing two IR hedging questions Alecto Co 2012 and Awan Co 2013 from the Kaplan kit. One is a hedge to borrow and the other to invest.
In the G/L futures calculation I noticed the Awan is doing the following:
(94.76-94.55) x 2m x 32 x 3/12
Whereas Alecto is:
(97.02-96.16) x 25 x 37
The first takes into account the contract size, no of contracts and most important a division by months and year whereas the latter is only taking into account the no of contracts & tick value.
Why would this be the case and how can this be distinguished within the question?
Is the 3/12 a rule to follow?
The tick value is calculated using the 3/12 which is because they are always 3 month futures. I do explain this in my free lectures on interest rate hedging (and as I explain in my lectures you never actually need to use ticks – it is your choice 🙂 )