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Just want to confirm something: Say i enter a 3Y Korean swap and duration hedge this with 3Y bond futures. As the swap rolls down, I adjust the futures hedge to exactly delta hedge the swap. The main sources of PnL i earn from this trade is therefore:1) swap carry + rolldown2) basis risk PnL because of the mismatch between futures and swap ("swap spread")3) any roll-related risk PnL when the futures contract rollsSo if I purely hedge with futures I would have hedged out most of the mark-to-market (delta) PnL? Is this correct?

Doesn't mark-to-mkt pnl the ultimate total that includes the numbers 1,2 and 3 you mentioned? In general, it's probably safe to assume that you don't have any outright and curve exposure (not true, strictly speaking, but true enough).

for pnl attribution, you can break up say 1-day pnl of a trade into delta PnL + theta PnL + higher order terms by 1st order taylor expansion.Assuming constant vol and rho, I think of the delta PnL as the PnL attributed to changes in underlying market prices (partial derivatives with respect to asset price, FX rate, interest rates, etc, etc), and theta PnL as the time decay factor (partial derivative with respect to time) so it captures carry and rolldown. I want to keep the theta PnL, but hedge away the delta PnL which I use futures for (there is still swap spread risk and some minor curve risk, but assume its static and small). So I mean delta PnL as the MTM PnL.So is this how it works? Isn't this what an option trader does?

QuoteOriginally posted by: hongjiren2000for pnl attribution, you can break up say 1-day pnl of a trade into delta PnL + theta PnL + higher order terms by 1st order taylor expansion.Assuming constant vol and rho, I think of the delta PnL as the PnL attributed to changes in underlying market prices (partial derivatives with respect to asset price, FX rate, interest rates, etc, etc), and theta PnL as the time decay factor (partial derivative with respect to time) so it captures carry and rolldown. I want to keep the theta PnL, but hedge away the delta PnL which I use futures for. So I mean delta PnL as the MTM PnL.So is this how it works? Isn't this what an option trader does?I understand the meaning, but don't agree with the terminology, that's all. To me 'MTM pnl" means the total pnl that includes everything. Doesn't matter what you call it, really, so it's fine.