David,

I am working through the numbers in the screen cast for hedging an option with a zero cpn bond.  I am having problems getting the same numbers.  Nothing new with me.  Do you have a spread sheet on this one?

Frank

Hi Frank,

Here is the editgrid version.
If want the XLS, let me know.
The analysis here is way more than a test question, take heart. A test question will more likely give you the DV01s and ask for the hedged face value. But it’s good to know the dvo1

David

I know that the answer has something to do with “face value” but could you explain why in cells F27 and H27 you divided by 100?

Hi Mikey,

You are right, it is because the DV01 is per $100 in face value. See C2 and C19/20: both the bond and option face value are $100 (although the option isn’t dynamic). f the DV01 were per $1 in face value, then the /100 wouldn’t be needed.

Thanks, David