Suppose that a manager wants to reduce the duration of a portfolio. Explain how this can be done using Treasury bond futures contracts.
Answer to relevant QuestionsAnswer the below questions. (a) What is counterparty risk? (b) Why do both the buyer and seller of a forward contract face counterparty risk? Suppose that an institutional investor wants to hedge a portfolio of mortgage pass-through securities using Treasury bond futures contracts. What are the risks associated with such a hedge? Explain how a market participant concerned with a decline in 3-month LIBOR can hedge that risk using the Eurodollar futures contract. How is the implied volatility of an option determined? What is the intrinsic value and time value of a call option on bond W given the following information? strike price of call option = 97 current price of bond W = 102 call option price = 9
Post your question