Compensatory ratio hedging
AssigneeCaterpillar Inc.
InventorsMark Henninger, Pierre Muller
Life of this patent
Estimating the term…
Abstract
Compensatory ratio hedging is a methodology whereby an amount of a bond that is hedged by a swap varies during the life of the swap, per a predetermined schedule, such that the change in the swap's mark-to-market dollar value is equal to the change in the bond's market value caused by an equal change in interest rates. The amount of bond being hedged by the swap will vary over a predetermined period of time to compensate for the differences in swap and bond valuation drivers. This methodology establishes a hedge such that an interest rate change has a similar dollar impact on the swap mark-to-market value and the bond mark-to-market value thus curtailing some reporting implications of Financial Accounting Standards No. 133 of the Financial Accounting Standards Board.
Claims13
1-20. (canceled)
A method for obtaining a compensatory hedge ratio, comprising:
- identifying a bond being hedged by a swap;
- determining the amount of said swap being issued and using same said amount for said bond;
- determining a period of time of said swap maturity;
- calculating a present value of a one basis point change in said swap yield;
- calculating a present value of a one basis point change in said bond yield;
- and
- calculating the compensatory hedge ratio by dividing (i) said present value of a one basis point change in said swap yield by (ii) said present value of a one basis point change in said bond yield.
A computer programmed to execute a compensatory hedge ratio, the computer having the program performing the steps recited in claim 9.
A method for determining ineffectiveness using a compensatory hedge ratio, comprising:
- (A) identifying a bond being hedged by a swap;
- (B) determining the amount of said swap being issued and using same said amount for said bond;
- (C) determining a period of time of said swap maturity;
- (D) calculating a present value of a basis point change in said swap yield by:
- (1) determining a projected profit of said swap for a predetermined period of time by calculating the difference between (i) said predetermined period of time commercial paper interest rate and (ii) said swap fixed interest rate,
- (2) computing a present value of step (D)(1) using said swap fixed interest rate as a discount rate,
- (3) determining a projected profit of said swap for said predetermined period of time by calculating the difference between (i) said predetermined period of time commercial paper interest rate plus one basis point and (ii) said swap fixed interest rate,
- (4) computing a present value of step (D)(3) using said swap fixed interest rate as a discount rate,
- (5) computing said present value of said basis point change in said swap yield by calculating the difference between step (D)(4) and step (D)(2);
- (E) calculating a present value of a basis point change in said bond yield by:
- (1) determining a period of time remaining in said bond maturity,
- (2) computing a present value of future interest and principal payments of said bond using an initial current yield to maturity as said discount rate,
- (3) computing a present value of said future interest and said principal payments of said bond using a sum of (i) said initial current yield to maturity and (ii) said basis point as said discount rate,
- (4) computing said present value of said basis point change in said bond yield by calculating the difference between step (E)(3) and step (E)(2);
- (F) calculating said compensatory hedge ratio in said predetermined period of time by dividing step (D)(5) by step (E)(4);
- and
- (G) determining said ineffectiveness in said predetermined period of time by calculating the difference between (i) said bond mark-to-market change in said predetermined period of time, and (ii) said swap mark-to-market change in said predetermined period of time.
Dependencies are inferred from the claim text.