You are a market maker in long-term EUR interest rate swaps. You consider hedging these 20-year swaps with either 10s or 30s but not both. To that end you run two single-variable regressions, both with changes in the 20- year EUR swap rates as the dependent variable, but one regression with changes in the 10-year swap rate as the independent variable and the other with changes in the 30-year swap rate as the independent variable. The results over the period July 1, 2009, to July 3, 2010, are given in the following table. Number of observations 259 Change in the 10-year Change in the 30-year 89.9% 96.3% 1.105 Independent variable R-squared Standard error Regression Coefficient Constant Independent variable Value std.Error 0.666 Value -0.008 0.917 std. Error 0.069 0.021 -0.017 0.042 1.001 0.011 1. [10pts] As the swap market maker, you just paid fixed in 100 million EUR notional of 20-year swaps. The DVols of the 10-, 20-, and 30-year swaps are 0.0864, 0.1447, and 0.1911, respectively. Were you to hedge with 10-year swaps, what would you trade to hedge[5pts]? And with 30-year swaps[5pts]? 2. [8pts] Approximately what would be the standard deviation of the P&L of a hedged position of 20-year swaps with 10-year swaps[4pts]? And if hedged with 30-year swaps[4pts]? 3. 2pts) If you were to hedge with one of either the 10- or 30-year swaps, which would it be 1 pts) and why Ipts)