Key rate hedging

[rickm123]

Hi David:

In reference to hedging with key rate exposures, do we need to know how to calculate simultaneous equations. Your notes, videos do not really explore this too profoundly..can you please let me know what we need to know for part 2 and if you have a video or question that explains this specificly please provide.

thanks

rick

 

[David Harper CFA FRM]

Hi Rick,

You are right, I don't really explain it (i.e., solving for the key rate hedging portfolio). Tuckman illustrates an example in his Chapter 7.
The AIM is "Calculate the key rate exposures for a given security, and compute the appropriate hedging positions given a specific key rate exposure profile."

Technically, I think we should add an example, although it has severely low testability. I don't have video to point to; I will add it to our internal task, I think it would be helpful.
I have written questions for the chapter, here at http://www.bionicturtle.com/how-to/question/market-risk-tuckman-chapters-6-7-9-21-l2.t5/

Thanks,

 

[rickm123]

Hi david: Tried to do this question and I am rather confused. Can you please explain as to what key rate hedging is trying to accomplish and will we need to know the methodology to obtain the face value as discussed in the samle question.
thanks Rick

 

[Arka Bose]

Hi David,
It would have been useful if u would have provided a bit of depth in explaining this topic. I tried reading tuckman too, went over my head.

 

[David Harper CFA FRM]

Hi @arkabose Understood, I will try to do better on the current refresh of the materials wrt to key rates, thanks

 

[Arka Bose]

Thanks David,
After reading the stuff many times from tuckman i got it.
You can explain why did we go for the equations (due to the mismatch of hedges of the 5 year with the 30 year),what are the values actually calculated in the table, why others are 0 values (bonds trading at par of the same maturity thing).
I know this is most probably not going to be tested, and for you as a prep provider, you have to take care of everything and also make it simple too. But a little bit depth in hard areas will be appreciated. Thanks.

P.S probably since this wasnt explained well in your materials, maybe it did well for me as i had to read that part over 50 times from the book to calm myself down.

 

[David Harper CFA FRM]

Thanks @arkabose I totally agree with you, even if it's not going to be tested, that should be our intention. Thanks,

 

[Ashok_Kothavle]

Hi Rick,

You are right, I don't really explain it (i.e., solving for the key rate hedging portfolio). Tuckman illustrates an example in his Chapter 7.
The AIM is "Calculate the key rate exposures for a given security, and compute the appropriate hedging positions given a specific key rate exposure profile."

Technically, I think we should add an example, although it has severely low testability. I don't have video to point to; I will add it to our internal task, I think it would be helpful.
I have written questions for the chapter, here at http://www.bionicturtle.com/how-to/question/market-risk-tuckman-chapters-6-7-9-21-l2.t5/

Thanks,

Mr David,

Seems this link
http://www.bionicturtle.com/how-to/question/market-risk-tuckman-chapters-6-7-9-21-l2.t5/

is missing. Please do the needful.

Regards

Ashok

 

[David Harper CFA FRM]

Hi @Ashok_Kothavle That link predates our forum migration so I can't be sure but I think it linked to this question https://forum.bionicturtle.com/threads/l2-t5-35-key-rate-hedge.3474 Thanks!

 

[Ashok_Kothavle]

Hi @Ashok_Kothavle That link predates our forum migration so I can't be sure but I think it linked to this question https://forum.bionicturtle.com/threads/l2-t5-35-key-rate-hedge.3474 Thanks!

Thanks a lot Mr David.

Regards

Ashok

 

[bpdulog]

Hi,

Does anyone know if we have to remember the formula for P&L for a hedge position ?