Patent ID: 7747501

Claim:
A computer assisted method of computing hedge ratios for one or more hedge instruments to hedge a portfolio of mortgage-backed securities belonging to a mortgage sector, the sector having multiple different coupons in a coupon stack, the method comprising: calculating, by a computer system, a vector of relative coupon durations for the coupons in the coupon stack based on a linear system [Δ{circumflex over (p)}] k =[{tilde over (W)}] k {circumflex over (d)}, where Δ{circumflex over (p)} is a vector of price changes across the coupons in the coupon stack, [{tilde over (W)}] k is a matrix of relative coupon weights multiplied by a change in a benchmark rate, k is a time horizon, and {circumflex over (d)} is the vector of relative coupon durations; calculating, by the computer system, real-time relative coupons for the coupon stack based on a real-time current coupon yield for the sector; calculating, by the computer system, real-time relative coupon weights [W](t) at real-time t for the coupons based on the calculated real-time relative coupons; calculating, by the computer system, real-time dollar durations for the coupons in the coupon stack based on a product of real-time relative coupon weights [W](t) and the vector {circumflex over (d)} of relative coupon durations; and calculating, by the computer system, the hedge ratios for the one or more hedge instruments based on the real-time empirical dollar durations for the coupons, wherein the computer system comprises one or more networked computer devices, each of the one or more computer devices comprising a processor and a memory.