Hedging against interest rate risk: Reconsidering volatility-adjusted immunization

Carcano, Nicola; Foresi, Silverio

doi:10.1016/s0378-4266(96)00031-3

Cited by 16 publications

(5 citation statements)

References 14 publications

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“…However, such firms may not face risks that can be hedged by derivatives, or they may indeed hedge by using some other means. In contrast to the traditional risk management theory, which derives rules from the objective of variance minimization (Carcano and Foresi, 1997;Brenner et al, 2005), numerous survey studies show that a considerable number of firms take a market view in their hedging policies for pursuing goals other than reducing volatility (Bodnar et al, , 1996(Bodnar et al, , 1998Howton and Perfect, 1998;Glaum, 2002). Managers attempt to hedge risks with a fluky view that they are able to correctly predict future market movements.…”

Section: Literature Reviewmentioning

confidence: 99%

Corporate debt issues and interest rate risk management: Hedging or market timing?

Antoniou¹,

Zhao

Zhou

2009

Journal of Financial Markets

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Section: Literature Reviewmentioning

confidence: 99%

Corporate debt issues and interest rate risk management: Hedging or market timing?

Antoniou¹,

Zhao

Zhou

2009

Journal of Financial Markets

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“…They find that none of the duration measures analyzed are superior to the others. Babbel (1983) and Carcano and Foresi (1997) compare the immunization strategies that control for differing volatility with those that depend on simple duration matching strategies. While Babbel finds that simple duration matching strategies perform as well as the proposed alternatives, Carcano and Foresi provide counterevidence by considering the correlations between interest rates.…”

Section: Introductionmentioning

confidence: 99%

The Performance of Alternative Interest Rate Risk Measures and Immunization Strategies under a Heath-Jarrow-Morton Framework

Ağca

2005

J. Financ. Quant. Anal.

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The Heath-Jarrow-Morton (HJM) model represents the latest in powerful arbitragefree technology for modeling the term structure and managing interest rate risk. Yet risk management strategies in the form of immunization portfolios using duration, convexity, and M-square are still widely used in bond portfolio management today. This study addresses the question of how traditional risk measures and immunization strategies perform when the term structure evolves in the HJM manner. Using Monte Carlo simulation, I analyze four HJM volatility structures, four initial term structure shapes, three holding periods, and two traditional immunization approaches (duration-matching and duration-and-convexitymatching). I also examine duration and convexity measures derived specifically for the HJM framework. In addition I look at whether portfolios should be constructed randomly, by minimizing their M-squares or using barbell or bullet structures. I assess immunization performance according to three criteria. One of these criteria corresponds to active portfolio management, and the other two correspond to passive portfolio management. Under active portfolio management, an asset portfolio is successfully immunized if its holding period return is greater than or equal to the holding period return of the liability portfolio. Under passive iii portfolio management, the closer the returns of the asset portfolio to the returns of the liability portfolio, the better the immunization performance.The results of the study suggest that, under the active portfolio management criterion, and with the duration matching strategy, HJM and traditional duration measures have similar immunization performance when forward rate volatilities are low. There is a substantial deterioration in the immunization performance of traditional risk measures when there is high volatility. This deterioration is not observed with HJM duration measures. These results could be due to two factors. Traditional risk measures could be poor risk measures, or the duration matching strategy is not the most appropriate immunization approach when there is high volatility because yield curve shifts would often be large.Under the active portfolio management criterion and with the duration and convexity matching strategy, the immunization performance of traditional risk measures improves considerably at the high volatility segments of the yield curve. The improvement in the performance of the HJM risk measures is not as dramatic. The immunization performance of traditional duration and convexity measures, however, deteriorates at the low volatility segments of the yield curve. This deterioration is not observed when HJM risk measures are used. Overall, with the duration and convexity matching strategy, the immunization performance of portfolios matched with traditional risk measures is very close to that of portfolios matched with the HJM risk measures. This result suggests that the duration and convexity matching approach should be preferred to duration matching alone....

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“…Ключевой проблемой современных определений риска является то, что они не отображают всех характеристик и ключевых составляющих риска, что не позволяет достоверно идентифицировать риски в практической деятельности (Бухтин, 2007;Дзаурова, 2015;Нетисова, 2010;Трофимов, 2010;Уткин, 1998;Almeida, Vicente, 2009;Basu, Ghosh, Kallianiotis, 2001;Carcano, Foresi, 1997;Dhanani, Fifield, Helliar, Stevenson, 2008;Gerich, Karjalainen, 2006;Singh, 2009;Vickery, 2008). Предлагаемое автором определение риска включает как все вышеуказанные базовые характеристики, так и все основные составляющие: факторы, последствия, объекты, субъекты (см.…”

Section: определение рискаunclassified

Процентный Риск: Определение И Особенности Использования Для Нефинансовых Компаний

Дмитриева¹

2015

Russian Journal of Entrepreneurship

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Большинство современных исследований процентных рисков направлены на исследование влияния данных рисков на компании финансового сектора, однако в последнее время, в связи с возросшими объемами кредитования реального сектора экономики, процентные риски становятся одним из ключевых факторов риска для нефинансовых компаний. В этой связи представляется необходимым привести теоретическую базу процентных рисков в соответствие новым экономическим реалиям и учесть специфику компаний нефинансового сектора. Так, большинство современных определений, доступных в экономической литературе, не отображают дуалистичную природу процентных рисков, а комплексные классификации процентных рисков для компаний нефинансового сектора отсутствуют. Данные проблемы теории валютных рисков были выявлены путем анализа определений и классификаций, представленных как в российских, так ив зарубежных исследованиях. В этой связи в данной статье представлены определение процентного риска, которое учитывает все составляющие и основные факторы возникновения процентного риска; классификация факторов возникновения процентных рисков; классификация процентных рисков, включающая ключевые составляющие валютного риска и виды валютного риска в зависимости от целей субъекта. Представленные в данной статье теоретические основы категории процентных рисков позволят компаниям нефинансового сектора предусмотреть все возможные факторы возникновения процентных рисков, соответствующим образом изменить внутреннюю нормативную базу в части идентификации и управления данными рисками и, следовательно, построить эффективную систему управления ими с целью избежания непредвиденных убытков и колебаний операционных доходов.

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Hedging against interest rate risk: Reconsidering volatility-adjusted immunization

Cited by 16 publications

References 14 publications

Corporate debt issues and interest rate risk management: Hedging or market timing?

Corporate debt issues and interest rate risk management: Hedging or market timing?

The Performance of Alternative Interest Rate Risk Measures and Immunization Strategies under a Heath-Jarrow-Morton Framework

Процентный Риск: Определение И Особенности Использования Для Нефинансовых Компаний

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