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FINANCIAL MARKET COURSES

Bond Hedging with Options

Bond investors expect to preserve their invested principal and simultaneously gain from periodic interest payments received from the bond issuer. Although investors are likely to receive their principal in full at maturity, the value of their position erodes if interest rates rise.

 

Fund managers use hedges to protect their bond portfolios against rising interest rates. Essentially, hedges are a type of insurance against an unfavorable outcome.

 

This course will look at some of the primary option-based bond hedging strategies and examine their features and characteristics in detail. The course will also discuss the design and implementation of these strategies.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Identify the different option-based bond hedging strategies available to fixed income fund managers

    Design and implement a specific option-based bond hedging strategy

  • COURSE OUTLINE

    Topic 1: Introduction to Option-Based Bond Hedging Strategies

    Hedging Process

    Hedging Strategies

    o Protective Put Buying Strategy

    o Covered Call Writing Strategy

    o Long Collar Strategy

    Topic 2: Structuring Option-Based Bond Hedges

    Structuring & Implementing Hedging Strategies

    o Structuring Process – Protective Put Buying Strategy

    • Determining the Underlying Instrument

    • Determining the Strike Price

    • Calculating the Hedge Ratio

    • Monitoring & Evaluating the Hedge

    Structuring Process- Covered Call Writing Strategy

    o Covered Call Writing Strategy - Determining the Strike Price

    o Covered Call Writing Strategy - Calculating the Hedge Ratio

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

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