Do Market Intermediaries Hedge their Risk Exposure with Derivatives?
Evidence from UK Govt. Bond Dealers Spot & Derivatives Positions by Narayan Y. Naik and Pradeep K. Yadav February, 2000 Abstract Using a comprehensive dataset from the Bank of England of UK government bond dealers spot and derivatives positions at the end of each day, we find that dealers actively hedge their spot risk with derivatives. However, they hedge selectively rather than engage in full cover hedging. Some of these dealers hedge not only their main risk factor, i.e., Duration exposure, but also the second risk factor, Twist exposure…
