A bank has assets of $340,000,000 and equity of $40,000,000. The assets have an average duration...
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A bank has assets of $340,000,000 and equity of $40,000,000. The assets have an average duration of 8 years, and the liabilities have an average duration of 4 years. A T-bond with the same coupon as the fixed rate on the swap has a duration of 4.5 years, and the duration of a floating-rate bond that reprices annually is 2.5 years. The bank wishes to hedge its balance sheet with swap contracts with notional values of $100,000. What is the optimal number of swap contracts the bank should enter? A bank has assets of $340,000,000 and equity of $40,000,000. The assets have an average duration of 8 years, and the liabilities have an average duration of 4 years. A T-bond with the same coupon as the fixed rate on the swap has a duration of 4.5 years, and the duration of a floating-rate bond that reprices annually is 2.5 years. The bank wishes to hedge its balance sheet with swap contracts with notional values of $100,000. What is the optimal number of swap contracts the bank should enter?
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