Hedging with Swaps Under a Parallel Shift of the Yield Curve

Hedging a bond position under a parallel shift of the interest rate has been largely considered and analyzed, though the underlying assumption is less realistic. Indeed both practical and theoretical reasons support the consideration to grant attention to this particular situation. Interest rate swaps (IRS) appear to be instruments largely used by market participants (companies,local governments, financial institutions, traders ...) for many purposes including debt structuring, regulatory requirements and risk management.However there are no clearly similar analyzes as those performed for bonds in the case of IRS and under the above mentioned assumption. Therefore our main target in this paper is to perform a systematic analysis of a portfolio hedging by means of a portfolio including swaps. Particularly, we are able to clarify the suitable swap sensitivities to make use in hedging and risk management, completing the well known bond duration and convexity in the setting of swaps.Our present results can provide a support for practitioners, using a portfolio of swaps and/or bonds, in their hedge decision-making. They may be also helpful to discern the various broker advertisements about switching to alternative instruments (as VIX futures, inverse ETF, Swap future ...) for the hedging purpose instead of just using a classical bond portfolio