Hi,
Trying to understand some concepts through a practical example.
EXAMPLE: I am trying to figure out the net benefit (among other things) of a notional neutral hedge between a 30 year bond (that I already own) and a 10 yr CDS that I will buy. Assuming there is no default.
I think what I need to do is determine my expected cash inflows from the bond, and my expected cash outflows for the cds contract, and the sum of those two together would give me my net benefit / could be broken down into my yearly profit/loss.
On top of this, as this hedge would be notional neutral, what is the significance of the difference in deltas between the CDS contract and the bond?
Thanks,
kaitieb
Trying to understand some concepts through a practical example.
EXAMPLE: I am trying to figure out the net benefit (among other things) of a notional neutral hedge between a 30 year bond (that I already own) and a 10 yr CDS that I will buy. Assuming there is no default.
I think what I need to do is determine my expected cash inflows from the bond, and my expected cash outflows for the cds contract, and the sum of those two together would give me my net benefit / could be broken down into my yearly profit/loss.
On top of this, as this hedge would be notional neutral, what is the significance of the difference in deltas between the CDS contract and the bond?
Thanks,
kaitieb
