Question: I don t understand how portfolio managers can calculate the duration
“I don’t understand how portfolio managers can calculate the duration of an interest-rate option. Don’t they mean the amount of time remaining to the expiration date?” Respond to this question.
Answer to relevant QuestionsAnswer the below questions. (a) What factors affect the modified duration of an interest-rate option? (b) Deep-in-the-money option always provides a higher modified duration for an option than a deep-out-of-the-money option. ...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 ...What arguments would be given by those who feel that the Black-Scholes model does not apply in pricing interest-rate options? Answer the below questions. (a) Suppose that at the inception of a five-year interest-rate swap in which the reference rate is 3-month LIBOR the present value of the floating-rate payments is $16,555,000. The fixed-rate ...Suppose that a life insurance company has issued a three-year GIC with a fixed-rate of 10%. Under what circumstances might it be feasible for the life insurance company to invest the funds in a floating-rate security and ...
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