13 Comments
 

If I had to guess what you are referring to (and I could be wrong) I would think perhaps using treasuries or passthrus to hedge the duration of the held mortgages.

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock
 

Alright, let's try this (these are not real numbers, just for examples sake):

You are long $100 million of MBS with duration of 15 years. You want to hedge using treasuries which have a duration of 10 years.

Would you buy or sell treasuries? How much would you buy/sell to fully hedge at that point in time?

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock
 

Alright, so you would do this:

10015= 10X X=100*15/10 X=150 million

So you would sell $150 million of treasuries to duration hedge the MBS.

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock
 

awesome, know anything about syntethicating a CD?

here's what i have

1 Year CD 1% 1.00 %

Dec 2010 Target date = 1.20% 98.80

Spot 3 mo ED .25 Creep=convergence cost .95 .95%
1.95%= 2 yr CD

have no idea what these numbers mean and how the process works.....is it just the 1 year CD or treasury (100-98.20) - 3 month ED future=Convergence cost, and then the 1 year CD+Convergence cost to get a 2 year CD?

 

No prob, I only dealt with Mortgages when I interned (so like a few weeks, only on synthetics for like a day). I'm not quite sure about that problem. I'll take a closer look into it in a few days.

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock
 

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