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Question
An investment company has purchased $100 million of 10 percent annual coupon, 6-year Eurobonds. The bonds have a duration of 4.79 years at the current market yields of 10 percent. The company wishes to hedge these bonds with Treasury-bond options that have a delta of 0.7. The duration of the underlying asset is 8.82, and the market value of the underlying asset is $98,000 per $100,000 face value. Finally, the volatility of the interest rates on the underlying bond of the options and the Eurobond is 0.84.
Given this information, what type of T-bond option, and how many options should be purchased, to hedge this investment?
A. 792 put options.
B. 792 call options.
C. 942 put options.
D. 942 call options.
E. 554 put options.
Answer
This answer is hidden. It contains 212 characters.
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