Patent ID: 7899731

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 mortgage 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 system of equations that relates a vector of price changes across the coupons in the coupon stack, a change in a benchmark interest rate, a matrix of relative coupon weights, and 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 mortgage sector; calculating, by the computer system, real-time relative coupon weights 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 the real-time relative coupon weights and the vector 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 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.