What does a Duration Neutral Position protect against?

A duration neutral position is designed to protect against the impact of parallel shifts in the yield curve across all maturities. This strategy is primarily employed in the context of fixed-income securities, where duration measures the sensitivity of a bond's price to changes in interest rates. When a portfolio is positioned to be duration neutral, it means that the weighted average duration of the securities held is structured so that the impact of interest rate changes is minimized.

In practical terms, if interest rates rise or fall equally across all maturities, the losses or gains in bond prices due to these movements can offset each other, leading to a stable net impact on the portfolio's value. This strategy helps investors manage interest rate risk without taking a directional bet on interest rate movements.

The other options relate to different types of risks or market behaviors. Adjustments in interest rates that vary by maturity would not be shielded fully by a duration neutral stance, as this can affect the yield curve in non-parallel ways. Credit risk and extreme market volatility introduce different dimensions of risk that are not specifically addressed by maintaining a duration-neutral position. Thus, the specific focus of a duration neutral position on parallel shifts aligns it accurately with protecting against those kinds of interest rate changes.