derivatives question

What would you say the answer is and why? which of the following would least likely provide an effective hedge for an investor with a portfolio primarily in fixed-coupon bonds? A. Sell bond futures B. Buy commodity-linked equites C. Buy commodity options D. Buy interest rate puts

For bonds, you don’t want the interest rate to increase because it will reduce your bond value. So you should open a position that will make money when interest rate increases. Obviously D is betting on the exact opposite of what you want to do, so D is the answer.

yes agreed… b and c are about the same, and you know not A

we want a hedge instrument for the scenario: interest rates rise a) makes a hedge b)+c) commodities are good in inflationary phases - so when inflation rises (and the interest rate) then commodities rise d) see post by ymc would also go with D

D. Same reasoning as above


All are right. thanks!

D, if you are long bonds you want to hedge against rates rising. Puts would hedge against rates falling