can someone plz explain waht this hedging strategy for mortgage commitments is or how it works? so if a bank is trying to hedge against the risk of the interest rates changing in the 60 day period before the loan goes through. the strategy is to buy a forward contract, and to buy a put against rates going up, and to buy a call against rates going down. “so you buy a put and call, and delta hedge in the middle” just wondering what does this mean delta hedging in the middle. also, waht is the point of buying a forward contract if u already have a put and call? thanks!
How can you delta hedge a delta neutral strategy (long straddle)? What’s wrong with buying a forward contract by itself? If the rate goes up you profit on the interest income (value of loan), if the rate goes down, profit on the forward contract… Disclaimer: I know next to nothing about bank asset-liability mgmt