Question
After one year, there is a duration gap between the liability and the immunization portfolio. The present value of liability is $96,547,125 and a modified
After one year, there is a duration gap between the liability and the immunization portfolio. The present value of liability is $96,547,125 and a modified duration of 6.765. The immunization portfolio has a market value of $97,936,562 and a modified duration of 7.032. John would like to close this duration gap by adopting derivative overlay strategy. The basis point value (BPV) for one future contract is $65.78.
Should John take a long or short position in future contracts? Please estimate the number of future contracts required to close this duration gap.
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