In a Duration or Delta Hedge question, will they always indicate whether you are selling or buying?
I ask because for example:
Example 26-N of ASM Manual (page 568), we are told to calculate the number of 1 year zero coupon bonds one needs to buy to delta hedge the sale of a 5 year old bond with the same maturity value as the 1 year bonds.
When we solve for N, the answer is -2.8173. Then solution says "one would have to buy 2.8173 1 year bonds to delta hedge."
Then, Quiz 26-6 of ASM Manual (page 569) asks: Determine the face amount of 10-year bonds with maturity value 1 to sell to delta hedge the purchase of a 5 year bond with maturity value 1000.
When we solve for N, the answer is -1.642. The solution says "we would have to sell 1,642 of 10-year bonds to delta-hedge."
As you can see, in both examples, solving for N gives a negative number, but in one instance you sell and in one instance you buy. So does the sign in front of N not matter??
I ask because for example:
Example 26-N of ASM Manual (page 568), we are told to calculate the number of 1 year zero coupon bonds one needs to buy to delta hedge the sale of a 5 year old bond with the same maturity value as the 1 year bonds.
When we solve for N, the answer is -2.8173. Then solution says "one would have to buy 2.8173 1 year bonds to delta hedge."
Then, Quiz 26-6 of ASM Manual (page 569) asks: Determine the face amount of 10-year bonds with maturity value 1 to sell to delta hedge the purchase of a 5 year bond with maturity value 1000.
When we solve for N, the answer is -1.642. The solution says "we would have to sell 1,642 of 10-year bonds to delta-hedge."
As you can see, in both examples, solving for N gives a negative number, but in one instance you sell and in one instance you buy. So does the sign in front of N not matter??
Duration & Delta Hedging - Selling or Buying??