2. Connie has decided to use options on the 10yr Treasury Future to hedge potential...
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2. Connie has decided to use options on the 10yr Treasury Future to hedge potential mortgage extension. The current CT has a duration of 8.5 years and a price of 100-05
a. Calculate the approximate price of the 10yr Treasury Future if rates increase by 2.0%, using the CTD duration.
b.Given the following, what could Connie expect to pay for a Treasury Future Put Option's to hedge the mortgage portfolio if rates increase 2.0%?
i. Forward Bond Price: 100-15
ii. Strike Price: 85-07 iii.
iii. Risk-Free Rate: 1.25%
iv. Expiration of Option: 1yr
v. Volatility: 15%
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