Let's say that I have a totally illiquid 30Y bond that I want to hedge with short-dated bonds and that the market is liquid up to 10Y bonds.

After 20 years, my 30Y bond will become a 10Y bond so I'll be able to hedge it easily, right?

But how do I hedge it from 30Y to 10Y? In which risk am I exposed to? How can I quantify these risks?

It's an open question, all ideas are welcome, thanks.


1 Answer 1


After 20 years, your 30 year bond will fall into 10 year bucket. so it has a high correlation with other liquid bond like 10 year and can hedge it easily. Fot the risk exposure between 10 and 30 year, you can hedge it with other type of asset like US, UL, swap. if they are not the available option for you. it hard to manage, you will have a large residual risk to handle.


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