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Financial Risk Manager Part 1

Financial Risk Manager Part 1

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A trader executes a 420million5−yearpayfixedswap(duration4.433)withoneclientanda420 million 5-year pay fixed swap (duration 4.433) with one client and a 420million5−yearpayfixedswap(duration4.433)withoneclientanda385 million 10-year receive fixed swap (duration 7.581) with another client shortly afterwards. Assuming that the 5-year rate is 4.15% and 10-year rate is 5.38% and that all contracts are transacted at par, how can the trader hedge his position?

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