Question
AMR Finance, with assets of $50,000,000, has a leverage-adjusted duration gap(DGAP) of -2.50 years. The CFO wants to fully hedge the exposure to interest rates
AMR Finance, with assets of $50,000,000, has a leverage-adjusted duration gap(DGAP) of -2.50 years. The CFO wants to fully hedge the exposure to interest rates using futures. The futures price quote is $950,000 (per $1,000,000 par value). The futures contracts are on 20-year, 5% coupon Treasury bonds with a duration (DF) of 9.5 years. How many futures contracts (NF) must be bought/sold to hedge the position? What is the gain/loss of the futures contracts position (
F) if interest rates decline by 0.50%? Current interest rates are 3%.
A) Sell 13 futures contracts; 
F= +$569,539.
B) Buy 13 futures contracts; 
F= +$569,539.
C) Buy 13 futures contracts; 
F= -$569,539.
D) None of the above.
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Machine Learning In Finance From Theory To Practice
Authors: Matthew F Dixon, Igor Halperin, Paul Bilokon
1st Edition
3030410676, 978-3030410674
