Financial Engineering

(I) Collect historical data(time-series) for Treasury securities of any country of your choice, preferably discount instruments or Constant maturity Treasuries (CMTs), of various maturities(at least Ove di§er- ent issues). The frequency has to be ideally weekly. The sample span has to be reaective of monetary policies, at least 2 years backwards from any present/reference date that you start collecting information. You will need to decide your reference day (the “present day”). (II) Calculate sample statistics of yield changes. i.e., volatilities ex- pressed in basis points, and correlations between the various issues. You have to comment on your Ondings. Carry out principal compo- nents analysis and comment on your Ondings. (111) Plot the input yield curve at your reference date (the ipresent dayi) and comment on its shape. (IV) Construct optimal two-bond hedges and butteray trades. Here, you should use actual Treasury coupon bearing bonds of the same country as above, preferably on-the-run. The reference date has to be the same as in Parts (1)-(I11). Comment analytically on the sub- stitutability between the various issues that you have chosen.

Sample Solution