Given such features, when changes in the interest rate result in a change in the expected cash flows, then duration is only an approximate measure of risk. They will receive delivery on August 1. The Lamottas are anxious to protect themselves from interest rate risk. They have decided to buy some futures contracts. The following are the prices for sterling short term interest rate futures on March 1.
Contracts expire mid-month.
This is 61.3, or rounded 63 contracts. Because the exposure period does not match a futures expiry period, a decision would have to be taken on which contracts to take out. The June contract could be taken out which would have the advantage of liquidity, then rolled over into the September contract. A stack hedge could be taken out, where the hedge is taken out in the near contract, and then rolled forward. With the stack hedge, the initial exposure is matched to the contracts, but the remaining exposure is hedged by rolling forward the contracts at, or near, the expiry of the near contract.