DV01 option screen cast 2B

[fashepard]

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

 

[David Harper CFA FRM]

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

 

[mikey10011]

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?

 

[David Harper CFA FRM]

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