Maturity Weighted Butterfly Swap

This is the fourth in a series of differently weighted butterfly swaps. I will adjust the list below, as I add more butterfly swaps:

  1. Cash & Duration Neutral Butterfly (aka Duration-Hedged Barbell)
  2. Fifty-Fifty Butterfly Swap
  3. Regression Weighted Butterfly Swap
  4. Maturity Weighted Butterfly Swap

Note: Although this type of swap shows positive convexity at changes of + or – 25 basis points, it does not necessary display positive convexity for smaller yield changes.

The formula for the Wings of the maturity weighted butterfly swap is the same as the regression weighted butterfly swap. The difference is that instead of using historic spreads to create a regression coefficient, the maturity coefficient is:

C is plugged into the formula for the weighting of the Wings:

Download: Butterfly-W.xlsx

Don Pistulka
Don Pistulka

Retired Credit Union CFO - Finance
Background: over 40 years in investments, asset/Liability management, banking, securities trader.
Worked for: California Credit Union, WesCorp, CalFed S&L, Crocker Bank, Carroll McEntee, Federal Home Loan Bank Board (D.C.), Western Asset Management, Security Pacific National Bank.

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