15. Albert Henri is the fixed income manager of a large Canadian pension fund. The present value of the pension funds portfolio of assets is CAD 4 billion while the expected present value of the funds liabilities is CAD 5 billion. The respective modified durations are 8.254 and 6.825 years. The fund currently has an actuarial deficit (assets < liabilities) and Albert must avoid widening this gap. There are currently two scenarios for the yield curve: The first scenario is a downward shift of 25bp, with the second scenario an upward shift of 25bp. The most liquid interest rate futures contract has a present value of CAD 68,336 and a duration of 2.1468 years. Analyzing both scenarios separately, what should Albert Henri do to avoid widening the pension fund gap? Choose the best option.

Scenario 1 Scenario 2

(a) Do nothing Long futures

(b) Do nothing Short futures

(c) Long futures Do nothing

(d) Do nothing Do nothing