mcmc

This is my first time of hearing duration of option. I know options have delta...

wake2000

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.

PalacioHill

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...

nannan66

1. when future volatility prediction is high (volatility prediction is low : option)
6. Parallel shift / twist
7. Whay is the cuspy-coupon mortgage security?

susana

a cyspy-coupon mortage security is a mortgage security for which changes in IR have large effects on pre-payments and prices.

Windjammer

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.

the opposite is true for option hedge.

2. decline
3. true
4. interest risk, prepayment, vol, model, spread
5. OAS
6. Level and twist
7. true
8. delta*duration of underlying*price_underlying/price_option

canadiananalyst

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

IAmNeil

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

answers pls happyking?