What is the formula for calculating BPV of future?

The formula for calculating the Basis Point Value (BPV) of a futures contract relies on the relationship between the cheapest-to-deliver bond and the conversion factor associated with that bond. The BPV reflects the change in the value of a bond or a bond portfolio in response to a change in interest rates, measured in basis points.

Using the BPV of the cheapest-to-deliver bond divided by the conversion factor for that bond provides a proper context to calculate the effective basis point value when dealing with futures contracts. The conversion factor is critical because it adjusts the BPV of the bond based on how much that bond will be worth when delivered against the futures contract, accounting for differences in coupon rates and maturities among the deliverable bonds.

This approach highlights how changes in interest rates will affect the pricing of the futures contract in relation to the underlying bond, resulting in a precise measure of risk exposure. Understanding this relationship is essential for fixed-income portfolio management and futures trading strategies.