How to hedge the prepayment risk(rate has risen/fallen)?
This is just a review exercise, but we may find something to clearify.
Edited 1 time(s). Last edit at Thursday, April 21, 2011 at 07:19PM by deriv108.作者: pennyless 时间: 2011-7-11 19:01
3) can tie prepayment risk to rate risk risk (eg rates down, pp risk up) and take a position in a relevant rate option.
4) you can attribute an amount of the vol risk to rates vol, and again take a position in a relevant instrument (vanilla option, vol swaps etc). the component that really relates to collateral quality, you can't really hedge. you could take a position in a related index (cmbx/primex) (essentially a credit vol) but the market is thin, and its not a great hedge against vol (more a hedge against the collateral quality itself, ie a delta hedge)
5) no hedge作者: Windjam 时间: 2011-7-11 19:01
also 2) swaps to hedge any floating coupons作者: former 时间: 2011-7-11 19:01
