Question
As a bond portfolio manager you have the discretion to hedge up to 30% of the US$85 million Corporate bond portfolio for which you are
As a bond portfolio manager you have the discretion to hedge up to 30% of the US$85 million Corporate bond portfolio for which you are responsible.You have to use a number of hedge structures to ensure the portfolio is protected for each ensuing quarter and then roll the hedge forward.Set upthe prospective hedges (at least three option based hedges) using the following prices for the 5 year T-Note (US$100,000 per contract)and note the basis risk (the durations are matched):
Sept/18 futures contract at 116.125
Call (price)StrikePut (price)
.111193.05
.261182.10
.391171.06
.63116.35
1.53115.26
2.29114.17
3.56113.10
4.75112.07
Try to structure three near zero cost hedges
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