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GARP 2016-FRR Exam - Topic 2 Question 6 Discussion

Sam has hedged a portfolio of bonds against a small parallel shift in the yield curve using the duration measure. What should Sam do to ensure that the portfolio is hedged against larger parallel shifts in the yield curve?
C) Take positions to make the convexity zero
A) Take positions to reduce the duration
B) Take positions to increase the duration
D) Since the portfolio is duration hedged Sam does not need to take additional positions.

GARP 2016-FRR Exam - Topic 2 Question 6 Discussion

Actual exam question for GARP's 2016-FRR exam
Question #: 6
Topic #: 2
[All 2016-FRR Questions]

Sam has hedged a portfolio of bonds against a small parallel shift in the yield curve using the duration measure. What should Sam do to ensure that the portfolio is hedged against larger parallel shifts in the yield curve?

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Suggested Answer: C

by Gail at May 05, 2025, 09:18 PM

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Leanna
7 months ago
Wait, can you really hedge against larger shifts just by adjusting duration?
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Elfrieda
7 months ago
Convexity plays a big role here, so making it zero might not be smart.
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Cathern
7 months ago
Sam should definitely consider increasing the duration for larger shifts.
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Clorinda
7 months ago
I think reducing the duration is the way to go!
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Rima
7 months ago
If it's already hedged, why mess with it? Sounds risky!
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Pearlene
8 months ago
I think if the portfolio is already duration hedged, Sam might not need to do anything else, but I’m not completely confident about that.
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Marci
8 months ago
I practiced a similar question where we had to adjust for convexity. I feel like making convexity zero isn’t the right approach here.
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Sage
8 months ago
I’m not entirely sure, but I think increasing the duration could help with larger shifts. It seems counterintuitive, though.
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Dorthy
8 months ago
I remember that duration only measures the sensitivity to small shifts, so I think we might need to consider convexity for larger shifts.
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Truman
9 months ago
Ah I see, so to fully hedge the portfolio we need to take positions to make the convexity zero. That makes sense, I'll go with option C.
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Junita
9 months ago
The key here is that duration only protects against small parallel shifts. To hedge against larger shifts, we need to consider the portfolio's convexity.
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Gary
9 months ago
I'm a bit confused on this one. Isn't duration supposed to protect against parallel shifts? Why would we need to do more?
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Jaleesa
9 months ago
Okay, I think I know the answer here. Since the portfolio is already duration hedged, we need to look at the next level of protection - convexity.
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Richelle
9 months ago
Hmm, this seems like a tricky one. I'll need to think carefully about the relationship between duration and larger yield curve shifts.
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Nadine
1 year ago
You know, I once heard a joke about a bond trader who tried to hedge against yield curve shifts by building a wall around his portfolio. Didn't work out too well for him. Anyway, I'm going with option B too.
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Rickie
1 year ago
I think D is the correct answer, since the portfolio is already duration hedged.
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Verlene
1 year ago
Haha, I bet Sam wishes he could just make the convexity zero and call it a day! But that's not how it works, is it? Gotta go with option B to increase the duration.
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Rory
1 year ago
User 3: Making the convexity zero would be too easy, option B is the way to go.
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Clay
1 year ago
User 2: Yeah, that's the way to hedge against larger parallel shifts in the yield curve.
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Annamae
1 year ago
User 1: Sam should take positions to increase the duration.
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Vicente
1 year ago
I think Sam should take positions to make the convexity zero.
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Doug
1 year ago
Option D sounds right to me. If the portfolio is already duration hedged, Sam doesn't need to do anything else. No need to overcomplicate things.
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Nakita
1 year ago
User 2: Agreed, if the portfolio is already duration hedged, there's no need for additional positions.
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Tamera
1 year ago
User 1: I think option D is the best choice here.
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Michell
1 year ago
I think Sam should take positions to increase the duration. Larger shifts in the yield curve can have a bigger impact on the portfolio, so increasing the duration will help offset that.
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Lou
1 year ago
Since the portfolio is duration hedged, maybe Sam doesn't need to take additional positions after all.
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Cherrie
1 year ago
Taking positions to make the convexity zero could also be a strategy to consider.
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Julieta
1 year ago
But wouldn't reducing the duration also be a good option to hedge against larger shifts?
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Domingo
1 year ago
I agree, increasing the duration would help protect the portfolio against larger shifts.
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Goldie
1 year ago
I disagree, I believe Sam should take positions to reduce the duration.
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Catrice
1 year ago
I think Sam should take positions to increase the duration.
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