I'm trying to work out the Interest Risk (PV01's) of a Bond Future. So at the moment the way I am doing it is by generating the CFs of a Bond starting now which Nominal value = No of Contracts * Size of the contract / ConversionFactor_of_Cheapest_to_Deliver e.g. if I am long 1 FVZ5 (5yr USA Tresasury Future), with: Cheapest to Deliver 3.5% 15-Feb-2010Conversion Factor (of the Cheapest to Deliver)= 0.909Contract size = $100,000Then I generate the CashFlows of a Bond with Nomial = 1*100,000/0.909 = 110,011So I get the following CashFlows:27-Oct-05 (1,100 )15-Feb-06 19 15-Aug-06 19 15-Feb-07 19 15-Aug-07 19 15-Feb-08 19 15-Aug-08 19 15-Feb-09 19 15-Aug-09 19 15-Feb-10 1,119 And I will calculate the Interest-rate risk on them. Am I doing the right thing?RegarsCarlos

how is the conv. factor calculated ?

I am sure daveangel is going to give me more grief on this, but I would recommend you look at Burghardt's 'Treasury Bond Basis' book. It's GRRREAT!

I hav eseen at least two variations of calculating conv factors ! One is simply the price of the CTD at the reference yield. the other one is the CBOT thing !.

QuoteOriginally posted by: pcgI hav eseen at least two variations of calculating conv factors ! One is simply the price of the CTD at the reference yield. the other one is the CBOT thing !.You can't use the simple way of pricing the CTD at ref yield, as you will definitely get something that's not quite right. Reason being that the true cnv factor as computed by the exchanges has all these pesky rules about rounding of the dates.The exact formulas are given in Burghardt and Choudhry, as well as provided by the exchanges... (see, dave, I can be subtle).