You are bond fund manager of a $500 million dollar portfolio with an average duration of 7.5. Interest rates have been hovering around historic lows and you are concerned that they will increase. The following instruments are available for hedging. Explain how you would use each to hedge your portfolio. NOTE: No calculation is required, but you do need to indicate whether you will buy (go long) or sell (go short) the particular instrument.
a) 10-year, 0-coupon Treasuries
b) Call options on Treasury securities
c) Fixed for floating swap (i.e., pay fixed and receive floating)
d) Floating for fixed swap (i.e, pay floating and receive fixed)