Modified Duration/Convexity Bond Portfolio Hedge At date t, the portfolio P to be hedged is a portfolio of Treasury bonds with various possible maturities. Its characteristics are as follows: Price $28,296,919 YTM MD 7.511% 5.906 Convexity 67.578 We consider Treasury bonds as hedging assets, with the following features: Bond Bond 1 Bond 2 Bond 3 Price ($) Coupon Rate (%) Maturity date 108.039 7 3 years 118.786 8 7 years 97.962 5 12 years Coupon frequency and compounding frequency are assumed to be annual. At date t, we force the hedging portfolio to have the opposite value of the portfolio to be hedged. 1. What is the number of hedging instruments necessary to implement a modified duration/convexity hedge? 2. Compute the YTM, modified duration and convexity of the three hedging assets. 3. Which quantities 01, 02 and 03 of each of the hedging asset 1, 2, 3 do we have to consider to hedge the portfolio P? Modified Duration/Convexity Bond Portfolio Hedge At date t, the portfolio P to be hedged is a portfolio of Treasury bonds with various possible maturities. Its characteristics are as follows: Price $28,296,919 YTM MD 7.511% 5.906 Convexity 67.578 We consider Treasury bonds as hedging assets, with the following features: Bond Bond 1 Bond 2 Bond 3 Price ($) Coupon Rate (%) Maturity date 108.039 7 3 years 118.786 8 7 years 97.962 5 12 years Coupon frequency and compounding frequency are assumed to be annual. At date t, we force the hedging portfolio to have the opposite value of the portfolio to be hedged. 1. What is the number of hedging instruments necessary to implement a modified duration/convexity hedge? 2. Compute the YTM, modified duration and convexity of the three hedging assets. 3. Which quantities 01, 02 and 03 of each of the hedging asset 1, 2, 3 do we have to consider to hedge the portfolio P