BFC3170 Study Guide - Final Guide: Interest Rate, Interest Rate Risk, Call Option
31 Jul 2018
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If interest rates rise, bond prices fall: increase in potential positive payoff for call writer. If interest rates fall, bond prices increase: increase in potential negative payoff for call writer. If interest rates rise, bond prices fall: increase in potential positive payoff for put buyer. If interest rates fall, bond prices rise: increase in potential negative payoff for put buyer. If interest rates rise, bond prices fall: increase in potential negative payoff for put writer. If interest rates fall, bond prices increase: increase in potential positive payoff for put writer: mechanics of hedging a bond or bond portfolio using options. Most pure bond options trade over the counter (otc) There are put and call options on four interest rate maturities: 30-day interbank cash rate, 90-day bab futures, 3-year t-bond futures, 10-year t-bond futures. Using options to hedge the interest rate risk of the balance sheet.
