Explanation:
Key rate exposures are used for measuring and hedging the risk of bond portfolios in terms of a relatively small number of the most liquid bonds available, usually the most recently issued, near-par, government bonds.
Partial '01s are used for measuring and hedging the risk of portfolios of swaps or portfolios that contain both bonds and swaps in terms of the most liquid money market and swap instruments.
Forward-bucket '01s, mostly used in the swap or combined bond and swap contexts, measure the risk of a portfolio not in terms of other securities but in terms of direct changes in the shape of the term structure.
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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
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