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tT
发表于 2009-6-13 13:12 | 只看该作者

[ 2009 FRM Sample Exam ] Market risk measurement and management Q6

management, position, should
 

6. The DV01 of a 3?year bond is 0.1482 and the DV01 of a 2?year bond is 0.1058. Assume the yields are perfectly correlated. A position of USD 3.5 million in a 3?year bond (face value USD 500,000) should be hedged by shorting how many 2?year bonds (face value USD 250,000)?

A. 5 two-year bonds

B. 12 two-year bonds

C. 20 two-year bonds

D. 24 two-year bonds

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Babul

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2#
发表于 2009-6-13 13:12 | 只看该作者
 

Correct answer is Cfficeffice" />

A is incorrect.

B is incorrect.

C is correct. With perfectly correlated yields, the hedge ratio = (0.1482/0.1058)*(1) = 1.4008. To hedge the 3.5 million position, for per dollar 3?year bond, we should should short about $1.4 of 2?year bond. So, we should short $ffice:smarttags" />3.5M*1.4008/$250,000 = 20 two?year bond.

D is incorrect.

Reference: Bruce Tuckman, "Fixed Income Securities 2nd/e", (New York: Wiley, 2002), Chapter 5

Type of question: Credit Risk Management

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