Corporate Bank has $840 million of assets with a duration of 12 years and liabilities worth $720 million with a duration of seven years. The bank is concerned about preserving the value of its equity...

Corporate Bank has $840 million of assets with a duration of 12 years and liabilities worth $720 million with a duration of seven years. The bank is concerned about preserving the value of its equity in the event of an increase in interest rates and is contemplating a macrohedge with interest rate options. The call and put options have a delta (δ) of 0.4 and −0.4, respectively. The price of an underlying T-bond is 104.4, its coupon is 8 per cent, and its modified duration is 7.6 years.