# Regression Hedge

- Least square regression analysis is performed with the help of historical relationship between real and nominal yields
- Real yields are the independent variable and nominal yield is the dependent variable
- This technique takes into consideration the change in the value of the real rate with change in value of nominal rate while calculating the face value of the hedge
- Face Value of regression based hedge
- F
_{r}= - F_{n}x DV01_{n}/ DV01_{r}x Î²

- F
- Î² is estimated using regression analysis between dependent nominal rate and independent real rate
- Regression can also be conducted with a two variable regression model