Benchmark Selection

The bond portfolio with the greatest structural risk is _most likely_:

Incorrect. You might arrive at this answer if you don't correctly identify the correlation between the portfolio's convexity and structural risk.

Incorrect. This answer can't be right, as it doesn't take into account the relationship between the dispersion of bond positions and structural risk.

Indeed. Portfolio C has not only the highest convexity, but also the greatest dispersion among the bonds. These are indicators of high structural risk. Usually convexity is considered a good thing in bond portfolios, but when strictly looking at structural risk, structural risk is reduced by minimizing the dispersion of the bond positions.

Portfolio A.

Portfolio B.

Portfolio C.