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Duration for futures calculation.
Portfolio consists of 200MM in assets with duration of 6 and 100MM in liabilities with 1 duration. Equity duration thus 11.
Question asks to modify duration to 4.
Formula used is (4 - 6)(200M) / (Futures Information on Bottom Which I Can't Remember).
Why not use 4 - 5.5 (net average asset duration when considering 100MM liabilities with 1 year duration). Hedging with duration of 6 would overhedge portfolio and cause portfolio duration to be <4. Question was multiple choice so I did get it right by the entire question is poor from a theory basis.
100MM in assets has a 6 duration, while the remaining 100MM is net 5. Invested in assets with 6 duration but having liability of 1 year liability attached to assets decreases duration to 5 or 5.25 if you use the 75& rule.
Edited 2 time(s). Last edit at Tuesday, May 17, 2011 at 10:14AM by Paraguay. |
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发表于 2011-7-11 19:25
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