Did this freak anyone else out? I had no idea how to calculate it. Schweser of course said we didn’t need to know any calcs on how to create a two bond hedge, but here one is in the sample. Do you guys know this stuff?作者: economicz 时间: 2013-4-10 23:41
is this the one where you had to add together the portfolio and hedge? CFAI did the calcs basically for you if you chose the right hedge
it was a round about way to just evaluating a hedge effectiveness if so. spread was 168bps if i remember right and the monthly hedged loss was considerably less in scenario analysis.
tricky question…作者: spartan1 时间: 2013-4-10 23:41
Annual spread was 168 bps, so you had to find monthly of 168/12=14.
Difference in Ginnie mae change in spread was -7.4 bps for either an increase or decrease. I had no idea this would be referred to as teh “cost” of the hedge. So since monthly yield of 14 was greater than 7.4 “cost”, it was worth it. They also had a duration hedge thrown in as a distractor I guess. Seems simple enough now, but I’m not sure if this was presented in Schweser.作者: mar350 时间: 2013-4-10 23:41
ilvino -1. not on my list of things to understand.作者: jcfa2011 时间: 2013-4-10 23:42
Makes two of us. Schweser specifically states (just checked), you will not have to perform any associated calcs… thanks again guys.作者: ninja1024 时间: 2013-4-10 23:42
if def wasn’t presented in schweser, but like you said—pretty simple to figure out.作者: Kiakaha 时间: 2013-4-10 23:42
btw, you didn’t have to do calcs to determine the % of each bond you need to sell in order to hedge….i think hedge effectiveness is fair game.作者: spartanag07 时间: 2013-4-10 23:42
i don’t think they asked for that anywhere on sample 2… then again even though i just took it i can’t even comprehend what you’re saying, so i’m going to say it’s my fault.作者: cfalevel2011 时间: 2013-4-10 23:43
no, i mean Schweser says calcs on determining % to hedge with each bond isn’t on the exam.
this example was definitely not that however as the hedge had already been determined (or one of 2 options)作者: BC_MBA_student 时间: 2013-4-10 23:43
i gotcha. thanks for your patience and understanding. ha…not too with it these days作者: Siddimaula 时间: 2013-4-10 23:43
I agree with u NG30, how can it be the cost. I guess that difference -7.4 is the convexity effect.作者: thommo77 时间: 2013-4-10 23:43
This is the sh!t that pisses me off. I would MUCH rather Schweser cover more stuff than be all selective about sh!t and throw out the old “oh, hmm you don’t need to know any of this.”
Seriously, what bullsh!t. It seems like 1/4 of the stuff I’ve come across on the CFAI samples and mock exams are things that Schweser specifically went out of their way to say we don’t have to know. WTF?
It’s like they want people to do good enough to feel like their study notes helped, but not good enough that everyone passes. Think about it… How much more $$ does Schweser make on people that pass the exams in 5 tries compared to those going 3/3? They have incentive to not teach this stuff very well.作者: mfleming1983 时间: 2013-4-10 23:44
Well at least they only charge half the second time around.作者: Kiakaha 时间: 2013-4-10 23:44
spud, in question number one he is using a sole treasury futures contract to hedge.
in the last question of the item set, they show a duration hedge and a two bond hedge. to correctly hedge the GNMA and account for the negative convexity you need to use the two bond hedge.
If you use the two bond hedge while holding the GNMA, you’ll notice that the difference between the two is -.074. This is essentially your cost of performing the hedge. You earn a spread of 168 basis points on the GNMA annually or 168/12 = 14 bps per month and therefore you are able to cover the costs of the hedge.
Make sense?作者: lucasg85 时间: 2013-4-10 23:44
Your logic to each of those question makes complete sense.
BUT how on earth do you know in question number one that he using a treasury future and in the last question they are using a two bond hedge? From what I see, the item set is exactly the same and the questions are exactly the same. It doesn’t say anywhere which one they are using for which question?!作者: Micholien 时间: 2013-4-10 23:45
Ditto Spud (& Plyon on another thread). WTF is going on here? The questions are exactly the same, no reference to which one to use - is there an answer to this?
