Below are the prices, DV01's and convexities of a 20-year Treasury bond and a call option on

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Below are the prices, DV01's and convexities of a 20-year Treasury bond and a call option on this bond. The call is on $100 face of the bond.

Yield: 5.00%

Bond Price: 100.00

Bond DV01: 0.08

Bond Convexity: 70

Call Price: 5

Call DV01: 0.04

Call Convexity: 9000

(a) A callable bond is a portfolio of long position in the 20-year bond and short position in the call. What are the duration and convexity for the callable bond?

(b) Construct a portfolio of the callable and the call option that has zero duration and positive convexity?

Related Book For answer-question

Management Science The Art of Modeling with Spreadsheets

ISBN: 978-1118582695

4th edition

Authors: Stephen G. Powell, Kenneth R. Baker

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Posted Date: Mar 07, 2024 03:42 AM

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Below are the prices, DV01's and convexities of a 20-year Treasury bond and a call option on

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a To calculate the duration and convexity of the callable bond we need to combine the duratio... View the full answer

Management Science The Art of Modeling with Spreadsheets

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