SS10: R26: Q6: Page193: two instrument hedge: is two instrument hedge we also called dynamic hedge?
in the solution, the equation equal to the negative of calculated MBS duration, because we want to hedge it, so it take the negative sign?
does a negative sigl also means a short position? Thanks.
the negative means that you are looking for a movement that is opposite than what you expect on your own portfolio
it does not mean short
what does mean short is, if you get negative for h1 or h2, the negative one got to be shorted.
i can spend some time trying to figure out it is possible to get - for both h1 and h2, probably not hard, just out of time to think about it, but all you gota know is negative h means short, but the negative infront of duration simply means you want opposite direction
regardless of my explanation being right or wrrong, good question.