标题: Reading 30: Hedging Mortgage Securities to Capture Relativ [打印本页]
作者: tycoon 时间: 2008-9-16 09:34 标题: [2008] Session 9－ Reading 30: Hedging Mortgage Securities to Capture Relativ
CFA Institute Area 8-11, 13: Asset Valuation
Session 9: Portfolio Management of Global Bonds and Fixed Income Derivatives
Reading 30: Hedging Mortgage Securities to Capture Relative Value
LOS a: Demonstrate how a mortgage security's negative convexity will affect the performance of a hedge.
作者: tycoon 时间: 2008-9-16 09:36
For a mortgage backed security trading at par, a large increase in market rates is most likely to make the securitys convexity:
A) | go from negative to positive. |
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| D) | go from positive to negative. |
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Answer and Explanation
The best answer is go from negative to positive. As rates increase and the price declines, the prepayment option goes out of the money. We could also say the convexity, if already positive, can become more positive, but that was not one of the answers.
作者: tycoon 时间: 2008-9-16 09:39
A mortgage securitys convexity is most likely to become negative if the market yield is:
| A) | declining and the price moves below par. |
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B) | declining and the price moves above par. |
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| C) | increasing and the price moves above par. |
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| D) | increasing and the price moves below par. |
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Answer and Explanation
A declining market yield will cause the price to increase. This condition will make prepayment more likely, and make the convexity negative.
作者: tycoon 时间: 2008-9-16 09:39
A mortgage security is most likely to exhibit positive convexity if:
| A) | the price is above par. |
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| C) | the yield curve has a parallel downward shift. |
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D) | the price is below par. |
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Answer and Explanation
If the price is below par, the market yield must be higher than the yield on the underlying mortgages, and the prepayment rate will be lower. This means the instrument is more likely to exhibit positive convexity.
作者: tycoon 时间: 2008-9-16 09:40
A portfolio manager has used a Treasury bond futures contract to hedge a mortgage security, which is trading at par, against a decrease in value from a 50 basis point increase in yield. If the yield were to decrease 50 basis points, the most likely result is:
| A) | the mortgage security will default. |
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B) | the net value of the position with the hedge will decline. |
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| C) | the net value of the position with the hedge will increase. |
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| D) | the net value of the position with the hedge will not change. |
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Answer and Explanation
The most likely result is that the position with the hedge will decline because of the mortgage securitys negative convexity. As the yield decreases, the prepayment option goes in the money and the value of the security does not go up by as much as the value of the short futures position goes down because the futures position has positive convexity.
作者: tycoon 时间: 2008-9-16 09:40
Hedging a mortgage security with a short Treasury futures contract is most effective if:
| A) | the mortgage security is in default. |
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| C) | it is trading above par. |
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D) | it is trading below par. |
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Answer and Explanation
If the security is trading below par, then it is most likely to exhibit positive convexity, and this will make a hedge formed with a Treasury futures contract that has positive convexity more effective.
作者: tycoon 时间: 2008-9-16 09:41
For a mortgage security trading at par and a hedge formed with a short position in a Treasury futures position that is designed to maintain a stable value, the hedge would still be effective if:
A) | there is a 100 basis point increase in yield. |
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| B) | there is a 100 basis point decrease in yield. |
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| C) | there is a 75 basis point decrease in yield. |
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| D) | the mortgage security defaults. |
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Answer and Explanation
A hedge that is designed to be effective for changes of +/-50 basis points for a mortgage security trading at par will likely be less effective for decreases greater than 50 basis points. This is because of negative convexity. Since the mortgage security is likely to exhibit positive convexity for prices below par, the hedge is more likely to be effective for the larger increase in yield.
作者: tycoon 时间: 2008-9-16 09:41
A mortgage security with a face value had a price of 99 at the opening of the trading day. During the day, the yield declined by 80 basis points below its opening yield and then increased 80 basis points above its opening yield. The corresponding prices of the instrument were 99.5 and 98 respectively. From this we can say the security:
A) | exhibited negative convexity. |
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| B) | exhibited excess volatility. |
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| C) | is an option free instrument. |
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| D) | exhibited positive convexity. |
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Answer and Explanation
The fact that the price increase from the yield decline was less than the price decrease from the yield increase is indicative of negative convexity caused by a prepayment option.
[此贴子已经被作者于2008-9-18 17:47:04编辑过]
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