--%>
Assignment Help - homework help

High-convexity portfolios outperform low-convexity portfolio

a) Whether the bond market moves up or down, high-convexity portfolios will for all time outperform low-convexity portfolios of equal duration and yield." Elucidate the argument supporting this statement and the connection to the classical immunization strategy. What factors would tend to undermine the validity of the statement?

b) An important drawback of "traditional yield spread analysis" is the "failure to take into account future interest rate volatility that would affect the expected cash flow" of a fixed income security. How does option adjusted spread analysis correct for the "failure" of traditional yield spread analysis in the valuation of bonds with embedded option features? Once the choice adjusted spread has been determined, how can the cost of option be calculated? What are some important pitfalls of using option adjusted spread analysis to value mortgage backed securities and other collateralized debt obligations?

   Related Questions in Business Economics

  • Q : Difference between normal and inferior

    Difference between normal goods and inferior goods. Give illustration.

    		•
  • Q : Why do governments enact trade barriers

    Why do governments enact trade barriers?

    		•
  • Q : Best illustration of a perfectly

    Which of the given is the best illustration of a perfectly competitive industry: w) wheat production. x) steel production. y) electricity production. z) airplane production. Hey friends please give your opinion for

    		•
  • Q : How do households dispose of their

    How do households dispose of their income?

    		•
  • Q : Problem on productive contribution

    Suppositions underpinning simple production possibilities frontier models don’t comprise a need that: (i) Net resources are fixed. (ii) All resources are efficiently employed. (iii) Technology is steady. (iv) Resource owners are paid according t

    		•
  • Q : Way to determine nature price of Adam

    “Natural price” by Adam Smith of a good was eventually determined through: (1) the amount of capital used within production in the short run. (2) long-run average costs of production, that Adam Smith believed to be the amo

    		•
  • Q : Explain Self-interest of the Market

    Explain Self-interest of the Market System?

    		•
  • Q : Attributed statement of the utilitarian

    “The best of all probable worlds is one in that we adopt policies which maximize the happiness of the lots number of people” is a statement of the utilitarian philosophy attributed to: (w) Alfred Korzybski. (x) Hugo Grotius. (y) Xenophon.

    		•
  • Q : Relation of increased productivity by

    Discussion of a pin factory by Adam Smith focused upon the increased productivity related along with: (w) free international trade as per absolute advantage. (x) specialization and the division of labor. (y) free international trade as per comparative advantage. (z) certainty abo

    		•
  • Q : Illustrate the 4th role is the

    Illustrate the 4th role is the reallocation of resources?

    		•