Explanation:
To measure and manage the non-parallel interest rate shift risk of portfolios with complex cash flow structures spread across different maturities (like combinations of bonds and interest rate swaps), risk managers rely on granular metrics. Partial '01s (which measure the portfolio's sensitivity to a 1 basis point shift in specific fitted rate curve segments) and forward-bucket '01s (which evaluate the risk across different forward rate buckets) are both standard analytical instruments used in this context.
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Q.45 Banca Antiniana from Naples, Italy, needs to calculate the risk level of several bond portfolios. Particularly, the bank needs to measure and hedge the risk of portfolios containing both bonds and swaps. What are the instruments which will be used in the calculation?
A
Partial '01s
B
Forward-bucket '01s
C
Both partial '01s and forward-bucket '01s
D
None of the above