What adjustments are required for a Duration Neutral Position during interest rate fluctuations?

The rationale for choosing the option that involves adjusting positions to accommodate non-parallel shifts and large changes in interest rates lies in the nature of a Duration Neutral Position. A Duration Neutral strategy aims to balance the interest rate sensitivity of assets and liabilities, often used by investors to manage interest rate risk effectively.

When interest rates fluctuate, they may do so in a non-parallel manner, meaning that different maturities may experience rate changes that do not align evenly across the curve. This creates a situation where the impact on the duration and overall portfolio can differ significantly from expected. Therefore, it is imperative to periodically adjust positions to maintain neutrality, especially if there are large shifts in rates that could lead to substantial changes in the portfolio's duration profile.

For effective risk management, these adjustments help ensure that the portfolio remains insulated from movements in interest rates, sustaining the desired level of exposure. By continuously monitoring and recalibrating positions, an investor can steer clear of unintended risk exposures that arise from market dynamics.

Other choices, such as asserting that no adjustments are needed or maintaining a fixed position, fail to acknowledge the dynamic nature of markets and the necessity for active management in response to interest rate movements. Focusing solely on short-term bonds also does not entirely mitigate risks, as