duration hedging - how to change a duration of portfolio
so i understand that duration hedging means you set the duration of your assets equal to the duration of your liabilities and so then your portfolio will be protected if rates shift up or down in a parallel way. but how do the banks actually change the duration of the assets or liabilities? do they just buy or sell more investments with a shorter or longer duration such that the whole portfolio's duration shortens? or do you use derivatives to change the duration? if so can someone plz give me an example of how a derivative can be used to change the duration of the portfolio? thanks a lot! |