Credit Suisse First Boston looked at the various ways of computing hedge ratios that are open to investors in a recent report.

The list of possibilities enumerated by the bank includes using option-adjusted duration (OAD), using price spreads to come up with "market implied durations," determining empirical durations by using the most recent 20 business days (this is for short-term empirical durations) and by using 10-year passthrough price history, as well as using applied multipliers (which is derived from IO valuations). Analysts said that each method may have its own drawbacks but together they could provide an idea of how to hedge passthroughs and to identify relative value.

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