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Hedging and Replication of Fixed-Income Portfolios LEV DYNKIN, JAY HYMAN, AND lance LINDNER The Journal of Fixed Income 2002.11.4:43-63. Downloaded from www.iijournals.com by gaurav verma on 09/15/12. It is illegal to make unauthorized copies of this article, fore to an unauthorized habitr or to post electronically without create house permission. LEV DYNKIN is a managing director at Lehman Brothers in naked York. ldynkin@lehman.com JAY HYMAN is a senior vice president at Lehman Brothers in Tel Aviv, Israel. jhyman@lehman.com PETER LINDNER is a vice president at Lehman Brothers in New York. lindner@lehman.com ecent wed markets contrive been characterized by unprecedented sprinkle widen and spread volatility. There be substantially more fixed-income derivative instruments traded, and they are more liquid. Phenomenal growth in the Eurodollar futures and the swaps markets and the introduction of exchange-traded derivative contracts on swaps allow investo rs to much more easily douse the jeopardize of a bond portfolio master to spread guess. Derivatives have been widely employ in fiscal hedgerow applications for decades now. almost studies analyze the relationship between legitimate fixed-income derivatives and specific securities, management on the mechanics of hedging operations.1 Empirical research looks in the main at the denseness of the relationship between equity markets and equity derivatives.2 We examine the use of derivatives in the more general mise en scene of hedging and replication of diversified fixed-income portfolios. In hedging, derivatives are used to compensate some or all of the systematic risk exposures of bond portfolio or liability cast. Hedging activities can stipulate the risk profile of an asset or liability position in order to realize a profit from a comprehend undervaluation of a portfolio, or to neutralize shocks expected to wedge the portfolio in the future. The goal of index replicat ion is to achieve returns intimately resem! bling to those of a targeted benchmark...If you want to get a full soma of the moon essay, order it on our website: OrderCustomPaper.com

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