Explain how the shape of the yield curve influences the theoretical price of a Treasury bond futures contract.
Answer to relevant QuestionsSuppose that bond ABC is the underlying asset for a futures contract with settlement six months from now. You know the following about bond ABC and the futures contract: (1) In the cash market ABC is selling for $80 (par ...Answer the below questions. (a) What is counterparty risk? (b) Why do both the buyer and seller of a forward contract face counterparty risk? One of the problems in liability-driven investing when using cash market Treasuries for hedging interest-rate risk is that the duration will producea dollar duration that does not match that of the iability dollar duration. ...Explain the asymmetric effect on the variation margin and cash flow for the short and long in an interest-rate futures contract when interest rates change. Here is an excerpt from an article titled “Dominguez Barry Looks at Covered Calls,” appearing in the July 20, 1992, issue of Derivatives Week, p. 7: SBC Dominguez Barry Funds Management in Sydney, with A$5.5 billion ...
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