What is the total cost of placing the hedge

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Reference no: EM132059469

An FI has a $150 million portfolio of six-year Eurodollar bonds that have an 8 percent coupon. The bonds are trading at par and have a duration of five years. The FI wishes to hedge the portfolio with T-bond options that have a delta of -0.632. The underlying long-term Treasury bonds for the option have a duration of 10.2 years and trade at a market value of $94,159 per $100,000 of par value. Each put option has a premium of $3.72 per $100 of face value.

How many bond put options are necessary to hedge the bond portfolio?

What is the total cost of placing the hedge?

Reference no: EM132059469

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