标题: series of quiz- mbs [打印本页] 作者: LBriscoe 时间: 2011-7-11 19:17 标题: series of quiz- mbs
1. when should a portfolio manager manage the vol risk by buying options, when should he hedge dynamically?
2. mbs are market-directional investment that should be avoided when one expect interest rates to __________.
3. true or false: when managed properly, mortage securities are not market-directional investments.
4. five principal risks of mortgage securities:
5. After hedgin the IR risk of a mortgage security, the portfolio manager has the potential to earn the treasury bill rates plus _____.
6. two important factors in explaning changes in yield curve are changes in the _____ and _______.
7. true or false: the addition to a two-bond hedge of an appropriate number of interest rate options enables a portfolio manager to offset SOME or ALL of the negative convexity of a cuspy-coupon mortgage security.
8. how to calculation the duration of an option.作者: IAmNeil 时间: 2011-7-11 19:17
1. when future volatility prediction is high use options
2. fall
3. true
4. volatility, interest rate, model, prepayment, spread
5. spread (it is actually risk free rate plus potential on spread)
6. ??
7. true
8. delta*duration*price_underlying/price_option
1. hedge dynamically when the implied vol in the option price is high and the portfolio manager believes that future realized vol will be lower than the implied vol.
1. Hedge dynamically if implied volatility is high, but expected to drop. If low, but expected to rise hedge with options.
2. An unhedged MBS should be avoided in a falling interest rate environment due to negative convexity.
3. A properly hedged MBS will NOT be market directional, though it is often falsely believed to be.
4.Spread (don't hedge), Interest, Prepayment, Volatility, Model
5. OAS
6. Shape and duration?
7. True
8. Brain fart作者: nannan66 时间: 2011-7-11 19:17
1. when future volatility prediction is high (volatility prediction is low : option)
6. Parallel shift / twist
7. Whay is the cuspy-coupon mortgage security?作者: susana 时间: 2011-7-11 19:17
a cyspy-coupon mortage security is a mortgage security for which changes in IR have large effects on pre-payments and prices.作者: wake2000 时间: 2011-7-11 19:17
It is the sweet spot along the curve ...I believe it is actually the point where it switches from positive convexity to negative convexity. Usually denoted by r*. Due to the large effects the changes have, it needs more than just the standard 2/10 to hedge, thus you use options or hedge dynamically. You would hedge dynamically if the implied volatility is high, but think actual volatility will be lower (because options will be expensive due to BS model); if implied volatily is low and you think actual will be higher you'd use options.作者: PalacioHill 时间: 2011-7-11 19:17
i recall that a cuspy won't work well for two bond hedge, u need an additional purchase of puts and calls... so i dont think it can hedge ALL of the neg convexity...作者: mcmc 时间: 2011-7-11 19:17
This is my first time of hearing duration of option. I know options have delta...作者: mar350 时间: 2011-7-11 19:17
Duration of option = Option delta*duration of underlying*(price of underlying/price of option)
NO EXCUSES作者: Roflnadal 时间: 2011-7-11 19:17
bulldog i like it like this
(Duration of option*price of option)/(duration of underlying*price of underlying)
= Option delta作者: aidebaobao 时间: 2011-7-11 19:17
pimpineasy Wrote:
-------------------------------------------------------
> bulldog i like it like this
>
> (Duration of option*price of option)/(duration of
> underlying*price of underlying)
>
> = Option delta
Thanks!作者: liangfeng 时间: 2011-7-11 19:17
2. mbs are market-directional investment that should be avoided when one expect interest rates to __________.
So, everyone says fall.
But, when yields fall, the price increases but then levels off/falls due to the negative convexity. When yields rise, the price falls (but not as much as a corporate bond). So, is it really correct to say that you would avoid MBS if you expect rates to decrease? doesnt seem like you would buy them if rates were increasing.作者: Analti_Calte 时间: 2011-7-11 19:17
jmac01 Wrote:
-------------------------------------------------------
> 2. mbs are market-directional investment that
> should be avoided when one expect interest rates
> to __________.
>
> So, everyone says fall.
>
> But, when yields fall, the price increases but
> then levels off/falls due to the negative
> convexity. When yields rise, the price falls (but
> not as much as a corporate bond). So, is it
> really correct to say that you would avoid MBS if
> you expect rates to decrease? doesnt seem like
> you would buy them if rates were increasing.
If CFAI tells me my name is "Goat" then my name is indeed, Goat.
NO EXCUSES作者: strikethree 时间: 2011-7-11 19:17
jmac01 Wrote:
-------------------------------------------------------
> 2. mbs are market-directional investment that
> should be avoided when one expect interest rates
> to __________.
>
> So, everyone says fall.
>
> But, when yields fall, the price increases but
> then levels off/falls due to the negative
> convexity. When yields rise, the price falls (but
> not as much as a corporate bond). So, is it
> really correct to say that you would avoid MBS if
> you expect rates to decrease? doesnt seem like
> you would buy them if rates were increasing.
I think this statement would apply if you take a relative approach, say, in relation to straight corporate bonds. Because of the negative convexity from the prepay option in MBS's, you would rather be long option-free bonds if rates fall, all else being equal.作者: ohai 时间: 2011-7-11 19:17
bpdulog Wrote:
-------------------------------------------------------
> Duration of option = Option delta*duration of
> underlying*(price of underlying/price of option)
Personally, I would say that duration of an option is just rho which would not be exactly the same as this because the option is sensitive to interest rates even if the underlier isn't. Is this (cheesy) definition in one of your books?作者: Colum 时间: 2011-7-11 19:17
absolutely作者: thommo77 时间: 2011-7-11 19:17
JoeyDVivre Wrote:
-------------------------------------------------------
> bpdulog Wrote:
> --------------------------------------------------
> -----
> > Duration of option = Option delta*duration of
> > underlying*(price of underlying/price of
> option)
>
>
> Personally, I would say that duration of an option
> is just rho which would not be exactly the same as
> this because the option is sensitive to interest
> rates even if the underlier isn't. Is this
> (cheesy) definition in one of your books?
