In relation to a convertible arbitrage trade in general, carefully explain what is meant by the convertible bond's two convexities and how these convexities affect the hedging choices of the portfolio manager.
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- Discuss the following operating hedge strategies 1. Risk Shifting 2. Price Adjustment clauses 3. Exposure netting2 Give an example of how a swap might be used by a portfolio manager. a)Explain the nature of the credit risks to a financial institution in a swap agreementWhat does vega measure? What can you tell from vega value? Can the vega of a derivatives portfolio be changed by taking a position in the underlying asset? Explain your answer.
- Explain the principle of immunization when used with a bond portfolio. a. What is bond portfolio immunization attempting to achieve? b. How is bond portfolio immunization achieved? c. Which bond risk components interact to make immunization successful? i. Explain how these bond risk components interact to immunize a bond portfolio.Differentiate between money market and capital market securities by givingappropriate examples.Explain the principle of immunization when used with a bond portfolio. What is bond portfolio immunization attempting to achieve? How is bond portfolio immunization achieved? Which bond risk components interact to make immunization successful? Explain how these bond risk components interact to immunize a bond portfolio.
- Which theory of the term structure proposes that bonds of different maturities are not substitutes for one another? a. Market segmentation theory b. Expectations theory c. Separable markets theory O d. Liquidity premium theory1) Financial markets may be categorized as? A). debt securities markets B). Equity securities markets C). Derivative securities markets D). Foreign exchange markets. Required : Please answer this question by choosing the correct option.Identify Common Bond Investment Strategies: Interest Rate Strategy: Passive Strategy: Maturity Matching