Just noticed that what had been reading 32- LOS e last year is gone…last year it had “contrast a two-bond hedge that takes accoutn of yield curve level and twist changes with a duration hedge”. Wonder if the 2 bond hedge calculation is out now, or just covered under a different LOS.
it is still there…
While it is true they deleted that LOS, there is still an EOC about it so it must fall under another LOS. Drat, was hoping to punt that one. No such luck.
yes, unfortunately it is still there as i attempted to read that today…crossing that one off of my “to remember” list.
now it’s mixed in with Los 31c and 31d and isn’t quite as wordy.
mp2438 Wrote: ------------------------------------------------------- > yes, unfortunately it is still there as i > attempted to read that today…crossing that one > off of my “to remember” list. Working through it right now, as it too was on my list of those things to revisit. I think CFAI does a better job on this reading than Schweser.
thanks, I’ll take a look.
I thought all of fixed income was pretty shallowly covered by schweser relative to the CFAI.
CFA is way better with FI especially on this topic area.
I’m punting the 2 bond hedge calc though…it will push out far too much other info for what would be a 3 point Q.
Thanks GM, this was actually quite easy after reading the CFAI explanation. Took me maybe 20 mins to get down but now that I have good notes it shouldn’t be that tough to handle if it shows up. Did you find there was anything omitted from Schweser that was in the CFA texts for FI? I only read it for this one piece and I don’t want to waste my time but just curious if there’s anything else I should look out for.
Aimee, Would you please summarize the key ponits ? TKVM !
I can give you my summary but I don’t know if it will make a ton of sense since I wrote it to remind myself of what was written there. I would highly recommend cracking open the CFA book and reading the 3 or 4 pages on it, its not tough to do. They will have to give us the average price changes, there’s no way they could ask us to come up with those in the exam. Anyways, here’s what I wrote: Two-bond hedge: Step 1: Given assumed change in level of IRs, determine average absolute price change per $100 of mortgage security and 2yr/10yr bond. Step 2: Given assumed change in twist of IRs, determine average absolute price change per $100 of mortgage security and 2yr/10yr bond. Step 3/4: Set up two equations to determine amount in each instrument to take per $1 MS: Level: (Amt in 2yr)(avg price change) + (Amt in 10yr)(avg price change) = - avg price change mtg Twist: (Amt in 2yr)(avg price change) + (Amt in 10yr)(avg price change) = - avg price change mtg Example: Mgr simulates w/MC how $100 of mtg security will change for given yield change and forecasted twist. Results: For Level: Avg price change Mtg .75 2 yr .24 10 yr 1.80 For Twist: Avg price change Mtg .32 2 yr .15 10 yr .60 (weight 2yr)(.24) + (weight 10yr)(1.80) = -.75 (weight 2yr)(.15) + (weight 10yr)(.60) = -.32 Solve
Aimee, TKVM ! I will try to digest them.
This right? eqn 1 .24H2 + 1.8H10 = -.75 eqn 2 .15H2 + .6H10 = -.32 .24 H2 = -.75 - 1.8H10 H2 = - 3.125 - 7.5H10 .15 (-3.125 - 7.5H10) + .6H10 = -.32 -.469 -1.125H10 + .6H10 = -.32 -.525H10 = 0.149 H10 = -0.284 .15H2 + .6*(-.284) = -.32 .15H2= -0.1496 -0.997333333 H2 = -1 Short .284 H10 and 1 H2
at this point in the game, i’m just looking to score points - not master every concept
what aimee wrote is pretty much the 2 bond hedge in a nutshell. If you know that then your good to go on exam day if it shows up!
Did anyone else get the same answer as I did? Short .284 H10 and 1 H2 to create the hedge?
boost, that is correct. I just didn’t want to muss up my notes page with a bunch of arithmetic