Question: This question asks to develop three mini-essays on pricing and hedging in fixed income markets. (i) (10 points) Describe how duration-hedging works in the

This question asks to develop three mini-essays on pricing and hedging in fixed income markets. (i) (10 points) Describe how duration-hedging works in the context of asset-liability management. (ii) (15 points) Describe the relation between floating rate bonds, coupon bonds, and interest rate swaps. (iii) (15 points) Describe the concepts of implied volatility and forward volatility and their relation to interest rate caps.

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i Durationhedging in assetliability management involves matching the duration of a firms assets to its liabilities Duration is a measure of the sensit... View full answer

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