A market maker wants to delta hedge a long position of $10 million in face value of 20-year bonds with 30- year bonds until he/she finds a buyer of the 20-year bonds. DV01 of the 20-year bond is 0.1184 and DV01 of the 30-year bond is 0.1429. If the 20-year yield is expected to rise 1.1bp for each 1bp increase in the 30- year bond, what should be the position of the 30-year bond for this market maker? A. Short position of $13.28 million B. Long position of 13.28 million C. Short position of 10.97 million D. Short position of 9.11 million E. Short position of 7.53 million
A market maker wants to delta hedge a long position of $10 million in face value of 20-year bonds with 30- year bonds until he/she finds a buyer of the 20-year bonds. DV01 of the 20-year bond is 0.1184 and DV01 of the 30-year bond is 0.1429. If the 20-year yield is expected to rise 1.1bp for each 1bp increase in the 30- year bond, what should be the position of the 30-year bond for this market maker? A. Short position of $13.28 million B. Long position of 13.28 million C. Short position of 10.97 million D. Short position of 9.11 million E. Short position of 7.53 million
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A market maker wants to delta hedge a long position of $10 million in face value of 20-year bonds with 30-
year bonds until he/she finds a buyer of the 20-year bonds. DV01 of the 20-year bond is 0.1184 and DV01
of the 30-year bond is 0.1429. If the 20-year yield is expected to rise 1.1bp for each 1bp increase in the 30-
year bond, what should be the position of the 30-year bond for this market maker?
A. Short position of $13.28 million
B. Long position of 13.28 million
C. Short position of 10.97 million
D. Short position of 9.11 million
E. Short position of 7.53 million
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