Question

It is January 30. You are managing a bond portfolio worth $$\$ 6$$ million. The duration of the portfolio in 6 months will be 8.2 years. The September Treasury bond futures price is currently 108-15, and the cheapest-to-deliver bond will have a duration of 7.6 years in September. How should you hedge against changes in interest rates over the next 6 months?

   It is January 30. You are managing a bond portfolio worth $$\$ 6$$ million. The duration of the portfolio in 6 months will be 8.2 years. The September Treasury bond futures price is currently 108-15, and the cheapest-to-deliver bond will have a duration of 7.6 years in September. How should you hedge against changes in interest rates over the next
6 months?

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Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 6, Problem 7

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Step 1

This is calculated using the formula: Change in Value = - (Duration of Portfolio) × (Change in Interest Rate) × (Portfolio Value). In this case, the duration of the portfolio in 6 months is 8.2 years, and the portfolio value is $6 million. For a 1% change in Show more…

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It is January 30. You are managing a bond portfolio worth $$\$ 6$$ million. The duration of the portfolio in 6 months will be 8.2 years. The September Treasury bond futures price is currently 108-15, and the cheapest-to-deliver bond will have a duration of 7.6 years in September. How should you hedge against changes in interest rates over the next 6 months?

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