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At date t, the portfolio P to be hedged is a portfolio of Treasury bonds with various possible maturities. Its characteristics are as follows: Consider
At date t, the portfolio P to be hedged is a portfolio of Treasury bonds with various possible maturities. Its characteristics are as follows: Consider the following Treasury bonds as hedging assets, with the following features: Coupon frequency and compounding frequency are assumed to be annual. a. What is the number of hedging instruments necessary to implement a modified duration convexity hedge? b. Compute the YTM, modified duration and convexity of the three hedging assets. c. What quantities phi_1, phi_2 and phi_3 of each of the hedging asset 1, 2 and3would be necessary to hedge the portfolio P? At date t, the portfolio P to be hedged is a portfolio of Treasury bonds with various possible maturities. Its characteristics are as follows: Consider the following Treasury bonds as hedging assets, with the following features: Coupon frequency and compounding frequency are assumed to be annual. a. What is the number of hedging instruments necessary to implement a modified duration convexity hedge? b. Compute the YTM, modified duration and convexity of the three hedging assets. c. What quantities phi_1, phi_2 and phi_3 of each of the hedging asset 1, 2 and3would be necessary to hedge the portfolio P
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