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Looking at the excellent CME Treasury Analytics tool, I can see that the hedge ratio for spreads betweend diff treasury futures is derived from the DV01 of each leg.

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I can get treasury futures data and test strategies, however I don't think is that easy to get historical DV01 in order to get the historical hedge ratio. Is it possible to approximate the Hedge Ratio using using the minimum variance approach?....what would be an appropriate rolling window for the calculation?

Thanks

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DV01 is defined as $$ \text{DV01} = -\frac{dP}{dy}, $$ so technically you could run a regression of futures price changes vs (CTD) yield changes. The resulting DV01 is known as empirical DV01. In the context of trading bond futures, shorter-term horizons such as 3m and 6m are typically used. The chart below shows the actual TY/WN hedge ratio and an empirical version (using a rolling 3m window):

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But to be honest, it's probably better to compute the actual DV01 over time... The chart below shows the historical TY/US hedge ratio. The jump results from the US contract spec change in 2015 that drastically changed the duration of the US contract. Empirical models would struggle a great deal.

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    $\begingroup$ Thanks. Do you know how can I obtain the historical DV01 data? $\endgroup$ – hernanavella Jan 24 at 13:26
  • $\begingroup$ @hernanavella We actually calculate these in-house. It isn't that bad if you have the historical futures/bond data. If you don't, some investment banks have these analytical data on their research portals as well. $\endgroup$ – Helin Jan 24 at 20:30

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