Show how derivatives can set a portfolio's equity and interest rate exposures at chosen targets

Measure the gap between current and target exposure, then size each leg. For equity, contracts = ((target beta − current beta) ÷ futures beta) × (value ÷ contract value); for rates, contracts = (target BPV − current BPV) ÷ futures BPV. A fund wanting more equity risk and less duration buys index futures and sells bond futures, leaving physical holdings untouched. Swaps work too: a total return swap receiving the index adds equity exposure, and paying fixed cuts duration. Options suit asymmetric targets, such as puts to floor equity losses or payer swaptions against rising rates. The trap is forgetting the collateral: futures on idle cash track the index only because that cash earns the short-term rate.