This is the fourth in a series of differently weighted butterfly swaps. I will adjust the list below, as I add more butterfly swaps:
- Cash & Duration Neutral Butterfly (aka Duration-Hedged Barbell)
- Fifty-Fifty Butterfly Swap
- Regression Weighted Butterfly Swap
- 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: