Unfortunately, the hedging effectiveness of the GNMA futures market has been diminished by a lack of understanding of the selection of proper hedge ratios. This paper presents a derivation of the optimal hedge ratio for hedging interest rate risk with a GNMA futures contract. The hedge ratio is then applied to different hedging situations and the results of the traditional and newly derived hedging strategies are examined.
Kolb, R. W., Corgel, J., & Chiang, R. (1982). Effective hedging of mortgage interest rate risk. Housing Finance Review, 135-146. Retrieved [insert date], from Cornell University, SHA School site: http://scholarship.sha.cornell.edu/articles/1092