标题: Duration for futures calculation. [打印本页] 作者: adehbone 时间: 2011-7-11 19:25 标题: Duration for futures calculation.
Portfolio consists of 200MM in assets with duration of 6 and 100MM in liabilities with 1 duration. Equity duration thus 11.
Question asks to modify duration to 4.
Formula used is (4 - 6)(200M) / (Futures Information on Bottom Which I Can't Remember).
Why not use 4 - 5.5 (net average asset duration when considering 100MM liabilities with 1 year duration). Hedging with duration of 6 would overhedge portfolio and cause portfolio duration to be <4. Question was multiple choice so I did get it right by the entire question is poor from a theory basis.
100MM in assets has a 6 duration, while the remaining 100MM is net 5. Invested in assets with 6 duration but having liability of 1 year liability attached to assets decreases duration to 5 or 5.25 if you use the 75& rule.
Edited 2 time(s). Last edit at Tuesday, May 17, 2011 at 10:14AM by Paraguay.作者: Windjam 时间: 2011-7-11 19:25
Should be the 75% rule.作者: mcmc 时间: 2011-7-11 19:25
not a good question...i think they are just trying to make a simple formula more difficult for people to miss it...just like the formula for currency contribution in international diversification...so simple,yet when asked in a problem set its the most likely to miss it作者: thommo77 时间: 2011-7-11 19:25
superstar123 Wrote:
-------------------------------------------------------
> not a good question...i think they are just trying
> to make a simple formula more difficult for people
> to miss it...just like the formula for currency
> contribution in international diversification...so
> simple,yet when asked in a problem set its the
> most likely to miss it
Yeah standard deviation must always be in the same currency. I can see that being on the PM exam.
The whole thing is this question is frankly just wrong. Using 6 as the duration has decreased portfolio duration below 4.
Edited 2 time(s). Last edit at Tuesday, May 17, 2011 at 10:32AM by Paraguay.
