Q2. Consider 3 zero coupon bond: Maturity Yld 5 1.50% 10 1.75% 20 2.25% Q2a. calculate duration and convexity, dollar duration and dollar convexity for all three Q2b. how to hedge the duration risk of a 100M position in 10Y with 5Y and with 20Y respectively? Q2c. What is the total convexity for the 10Y long with 5Y hedge and with 20Y hedge respectively? Q2d. What is the duration and convexity PnL for a 10 bps parallel movement upward AND downward respectively? Q2e. What is the dur and convexity effect of 1 bps steepening for the 10 vs 5Y trade? (5Y up 50 bps; 10Y up 51 bps)?
Q2. Consider 3 zero coupon bond: Maturity Yld 5 1.50% 10 1.75% 20 2.25% Q2a. calculate duration and convexity, dollar duration and dollar convexity for all three Q2b. how to hedge the duration risk of a 100M position in 10Y with 5Y and with 20Y respectively? Q2c. What is the total convexity for the 10Y long with 5Y hedge and with 20Y hedge respectively? Q2d. What is the duration and convexity PnL for a 10 bps parallel movement upward AND downward respectively? Q2e. What is the dur and convexity effect of 1 bps steepening for the 10 vs 5Y trade? (5Y up 50 bps; 10Y up 51 bps)?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Q2. Consider 3 zero coupon bond:
Maturity Yld
5 1.50%
10 1.75%
20 2.25%
Q2a. calculate duration and convexity, dollar duration and dollar convexity for all three
Q2b. how to hedge the duration risk of a 100M position in 10Y with 5Y and with 20Y respectively?
Q2c. What is the total convexity for the 10Y long with 5Y hedge and with 20Y hedge respectively?
Q2d. What is the duration and convexity PnL for a 10 bps parallel movement upward AND downward respectively?
Q2e. What is the dur and convexity effect of 1 bps steepening for the 10 vs 5Y trade? (5Y up 50 bps; 10Y up 51 bps)?
hint: for duration effect, the first 50 bps for both maturities will cancel. for convexity effect, calculate convexity impacts for both legs separately and then sum up.
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