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Assume the bank wishes to hedge by using put options on Treasury bonds where the underlying security has a duration of 6 years. Put option
Assume the bank wishes to hedge by using put options on Treasury bonds where the underlying security has a duration of 6 years. Put option prices decline $.4 for every $1 move in T bond prices. The current market value of T bonds is $99,000. How many put option contracts are needed to hedge the interest rate risk exposure? Do you go long or short?
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