What is a naive hedge? How does a naive hedge protect an FI from risk?
Answer to relevant QuestionsSuppose that you purchase a Treasury bond futures contract at $ 95 per $ 100 of face value. a. What is your obligation when you purchase this futures contract? b. If an FI purchases this contract, in what kind of hedge is it ...Suppose that an FI manager writes a call option on a T-bond futures contract with an exercise price of 114 at a quoted price of 0-55. What type of opportunities or obligations does the manager have?What is basis risk? What are the sources of basis risk?Answer the following. a. What is the duration of a 20-year 8 percent coupon (paid semiannually) Treasury bond (deliverable against the Treasury bond futures contract) selling at par? b. What is the predicted impact on the ...An FI has a $ 200 million asset portfolio that has an average duration of 6.5 years. The average duration of its $ 160 million in liabilities is 4.5 years. Assets and liabilities are yielding 10 percent. The FI uses put ...
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