IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Interest rate options dealers' hedging in the US dollar fixed income market

  • John Kambhu
Registered author(s):

    The potential for the dynamic hedging of written options to lead to positive feedback in asset price dynamics has received repeated attention in the literature on financial derivatives. Using data on OTC interest rate options from a recent survey of global derivatives markets, this paper addresses the question whether that potential for positive feedback is likely to be realized. With the possible exception of the medium term segment of the term structure, transaction volume in available hedging instruments is sufficiently large to absorb the demands resulting from the dynamic hedging of US dollar interest rate options even in response to large interest rate shocks.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no

    Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9719.

    in new window

    Date of creation: 1997
    Date of revision:
    Handle: RePEc:fip:fednrp:9719
    Contact details of provider: Postal: 33 Liberty Street, New York, NY 10045-0001
    Web page:

    More information through EDIRC

    Order Information: Email:

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Gennotte, Gerard & Leland, Hayne, 1990. "Market Liquidity, Hedging, and Crashes," American Economic Review, American Economic Association, vol. 80(5), pages 999-1021, December.
    2. John Kambhu & Frank M. Keane & Catherine Benadon, 1996. "Price risk intermediation in the over-the-counter derivatives markets: interpretation of a global survey," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 1-15.
    3. Julia Fernald & Patricia C. Mosser & Frank Keane, 1994. "Mortgage security hedging and the yield curve," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 92-100.
    4. Michael J. Fleming, 1997. "The round-the-clock market for U.S. Treasury securities," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 9-32.
    5. De Long, J Bradford, et al, 1990. " Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-95, June.
    6. Lisa N. Galaif, 1993. "Index amortizing rate swaps," Quarterly Review, Federal Reserve Bank of New York, issue Win, pages 63-70.
    7. Sanford J. Grossman, 1987. "An Analysis of the Implications for Stock and Futures Price Volatility of Program Trading and Dynamic Hedging Strategies," NBER Working Papers 2357, National Bureau of Economic Research, Inc.
    8. Jameson, Mel & Wilhelm, William, 1992. " Market Making in the Options Markets and the Costs of Discrete Hedge Rebalancing," Journal of Finance, American Finance Association, vol. 47(2), pages 765-79, June.
    9. Bernanke, Ben S, 1990. "Clearing and Settlement during the Crash," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 133-51.
    10. Julia Fernald & Patricia C. Mosser & Frank Keane, 1994. "Mortgage security hedging and the yield curve," Research Paper 9411, Federal Reserve Bank of New York.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:fip:fednrp:9719. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.