U.S. dollar sensitivities to different interest rate

change scenarios. Use the information in the table to answer the following questions.

Table 4.1

1. Assuming JPMorgan is using duration convexity model to calculate their

sensitivity test. Comment on the leverage adjusted duration gap of JPMorgan in

2018 use Parallel shift scenario. Show your work. (10 marks)

2. From Table 4.1, we know the leverage adjusted convexity gap of JPMorgan is

negative. Given the same leverage adjusted duration, which of the following

scenarios would be preferred by a bank: [1] negative leverage adjusted convexity

gap [2] zero leverage adjusted convexity gap [3] positive leverage adjusted

convexity gap. Explain your answer.