Duration-Weighted Hedging

A hedge position is designed to immunize the value of an underlying position by responding to market moves in an equal and opposite direction. We study how the interest rate sensitivity of a bond may be hedged by taking an opposing position in a bond with a similar duration. Such hedges can be done with different bond types and durations and we see an example of how this is done. The key risks of such strategies are discussed and the alternatives to these hedges.