choosing the duration of a swap

is there any indication of how to choose a swap duration to alter the duration of a portfolio?

in the schweser text, it just simply states that the manager will choose a swap duration and from there we just use the value to calculate the Notational Principal that achieves it…

but in the 2013 CFA sample exam provided, there are 3 swaps to choose from, with durations of -1, -2, -3. i wish to have a current portfolio duration of 5 and wish to decrease it to 2. do i always just use the swap with the largest duration so that my Notational principal is the least? or do i choose a swap that has a duration close to my target duration??

will provide the question if need be…i left the notes in school…damn

there is no right answer to your question since you dont provide enough information. The only reference point you have is this :

  1. if you want to alter the duration of your portfolio for 2 years ( not modify your duration by 2 years, but you want to modify your duration by X for 2years ), you should not use a 1y swap. because you would need to re-enter a swap, which is not wanted.

this is the main thing you should check. IF you use lets say a 2year, and the notional need to be 5 billion, then you should use a longer duration swap.

this is all…

Hi Guys,

I just did the mock as well and was just coming to the board to ask the same question. Got a decent score of 45/60 in the mock but need to brush up a few areas, especially CME.

Now, I think what we want to knwo is if you want to reduce your duration of your bond portfolio to a target and there are three swaps available all with different durations which one will you use to calculate the NP of the swap.

I guess when you think about it if you use the swap with the largest duration it will reseult in the lowest NP and hence your ficed interest payments would be lower from the swap.

Please add