Consider an FI that wishes to use bond options to hedge the interest rate risk in the

Question:

Consider an FI that wishes to use bond options to hedge the interest rate risk in the bond How does writing call options hedge the risk when interest rates decrease?
b. Will writing call options fully hedge the risk when interest rates increase? Explain.
c. How does buying put options reduce the losses on the bond when interest rates rise?
d. Diagram the purchase of a bond call option against the combination of a bond investment and the purchase of a bond put option. Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...