TITLE:
Hedging the Treasury Lock
AUTHORS:
Mario Pucci
KEYWORDS:
Treasury, Lock, T-Lock, Hedging, Arbitrage-Free, Convexity, Gamma, Repo
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.9 No.3,
August
13,
2019
ABSTRACT: The Treasury lock is a common pre-hedging derivative strategy the Street offers to their corporate clients. The paper provides a justification of the common practice of booking a short position in the Treasury lock as a forward contract on the underlying benchmark and a short position in the Then-Current Treasury lock as a forward contract on underlying benchmark rolled over the life of the contract.