A Bank Wishes to Reduce Its Duration Gap from 1

question 19

Essay

A bank wishes to reduce its duration gap from 1.2 years to zero by using put options. The bank has $800 million in assets. The underlying bonds on the puts are valued at $115,000 and have a duration of 4 years. The put options have a delta of 0.58. How many put options are needed? Assume that there is no basis risk on the hedge.

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