Explain and calculate the hedge ratio for a position of 10 Mio. nominal 4% Bund with...

 

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Explain and calculate the hedge ratio for a position of 10 Mio. nominal 4% Bund with a maturity of 8 years using a sensitivity hedge. The interest rate is 4% for all maturities (30/360, bond base), we assume no credit spread e.g. the swap rate and the bond yield are the same. a) Hedge with the Bund Future. The cheapest to deliver is a 5% Bund with a maturity of 10 years (30/360, bond base). (25 points) b) Explain the risks involved. (10 points) Explain and calculate the hedge ratio for a position of 10 Mio. nominal 4% Bund with a maturity of 8 years using a sensitivity hedge. The interest rate is 4% for all maturities (30/360, bond base), we assume no credit spread e.g. the swap rate and the bond yield are the same. a) Hedge with the Bund Future. The cheapest to deliver is a 5% Bund with a maturity of 10 years (30/360, bond base). (25 points) b) Explain the risks involved. (10 points)

Answer rating: 100% (QA)

a Hedge with the Bund Future To calculate the hedge ratio we need to determine the sensitivity of the bond position and the sensitivity of the futures ... View the full answer