Analysis of Bond Investment based on Immune Strategy

Abstract

Interest rate risk is the essential market risk faced by bond investment, mainly the price effect and reinvestment effect. With the acceleration of interest rate liberalization, the importance and urgency of interest rate risk management of bond investors are increasingly prominent. Moreover, as an essential method of immunity against interest rate risk, the duration immunity strategy has been widely used. This paper starts with the most basic concept of bond duration, using a specific case analysis. Through the calculation to build a reasonable bond portfolio, we find the risk immunization of the duration immune strategy regarding the sudden interest risk. Moreover, during the case study, we also had limitations of the immune strategy applications in the natural bond markets. Finally, we conclude the whole finding and then decide the next research direction.