Assume that you want to hedge the interest rate risk of a

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Suppose that you want to hedge the interest rate risk of a Fixed Income Security that has negative convexity. Suppose that you can create a perfect hedge with futures and options (paying a premium to buy the options). As an alternative, you can use hedge with futures alone. If you believe that the true volatility

will be much lower than the implied volatility of the options, which alternative should you choose? Why?

Reference no: EM13460204

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