NO.PZ2023032703000095
问题如下：
The conversation next turns to the state
of the economy. Another member of Thorn’s team, David Yung, concludes that the
economy will weaken, causing the yield curve to experience a downward parallel
shift. Yung proposes two trades.
l Trade 1: Sell a 5-year A-rated callable
corporate bond, Buy a 5-year A-rated non-callable bond of the same issuer
l Trade 2: Sell a 10-year fixed-rate
corporate bond, Buy a 10-year floating-rate bond of the same issuer
Determine, given Yung’s conclusions,
whether each of his proposed trades would most likely be profitable. Justify
each response.
选项：
解释：
Correct Answer:
Trade 1 should be executed. Interest rates decline when the economy weakens. Due to negative convexity, callable bonds underperform non-callable bonds during periods of declining interest rates. Callable bonds have a price limit imposed by the call price. Consequently, the bond would most likely be called when rates decline. The trade will, therefore, be profitable.
Trade 2 should not be executed. Given Yung’s economic outlook and anticipation of a parallel downward shift in the yield curve, duration should be increased, not decreased. Fixed-rate bonds have higher duration than floating-rate bonds as coupons are fixed rather than adjusting periodically to market interest rates. Selling higher-duration bonds to invest in lower-duration bonds as rates decline would not be appropriate.
可以再解释一下trade 1 为什么可以做么？
题目预测利率下降，要想赚钱，就要增加duration。trade 1中的long non-callable bond是增加的duration的。但是short callable bond不是减少duration的么？而且利率下降，callable还是non-callable的price都是上涨的，只是callable bond涨的少或者被cap住了，而non-call bond涨的会相对来说多一点。但是price肯定不是下跌的，那么请问如果是short position且price不下跌的话，怎么赚钱呢？