1 THE TOTAL VALUE OF THE PORTFOLIO IS ¥55.0 BILLION, AND THE...
Section 4.1
The total value of the portfolio is ¥55.0 billion, and the 40% target allocation to bonds
would be ¥22.0 billion, but the current allocation is ¥27.5, or ¥5.5 billion more. In order
to correct this discrepancy, the equivalent of ¥5.5 billion in bonds with a duration of
4.75 must be sold using bond futures and then converted to equity exposure with a 1.15
beta using stock futures. The number of bond futures contracts to be sold (shorted) is
where MDUR
T
is the target modified duration (0.25 for cash), MDUR
B
is the current
bond portfolio duration (4.75), MDUR
f
is the modified duration of the futures contract
(6.90), B is the value of the bonds being converted to cash (¥5.5 billion), and f
B