Question: Consider the Key Rates model and four securities with key rates given in the table below. If you want to hedge a security with KR012=50,

Consider the Key Rates model and four securities with key rates given in the table below. If you want to hedge a security with KR012=50, KR015=300, and KR0110=KR0130=0, how many of each S1, S2, S3, and S4 you will need to buy or sell?

Consider the Key Rates model and four securities with key rates given

Security Si S2 S3 S4 KR012 0.04 0 0 0.4 KR015 0.02 0.1 0 0 KR0110 0 0 0.08 0 KR0130 0 0.2 0.24 0.6 Security Si S2 S3 S4 KR012 0.04 0 0 0.4 KR015 0.02 0.1 0 0 KR0110 0 0 0.08 0 KR0130 0 0.2 0.24 0.6

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