Klein’s hedging strategy

value) U.S. government bond portfolio for an institution. She anticipates a small parallel shift in the yield curve and wants to fully hedge the portfolio against any such change. PORTFOLIO AND TREASURY BOND FUTURES CONTRACT CHRACTERISTICS Security – Modified Duration – Basis Point Value – Conversion Factor for Cheapest to Deliver Bond – Portfolio Value/Future Contract Price Portfolio U.S Treasury bond futures contract – 10 year/ 8 years – $100,000 $75.32 – Not applicable 1 – $100,000,000 94-05 a. Discuss two reasons for using futures rather than selling bonds to hedge a bond portfolio. No calculations required. b. Formulate Klein’s hedging strategy using only the futures contract shown. Calculate the number of futures contracts to implement the strategy. Show all calculations. c. Determine how much of the following would change in value if interest rates increase by 10 basis points as anticipated. Show all calculations. 1. The original portfolio 2. The treasury bond futures position 3. The newly hedged portfolio d. State three reasons why Klein’s hedging strategy might not fully protect the portfolio against interest rate risk. e. Describe a zero-duration hedging strategy using only the government bond portfolio and options on U.S. Treasury bond futures contracts. No calculations required.

Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more