Immunization Strategies for Funding Multiple Liabilities

Bierwag, G. O.; Kaufman, George G.; Toevs, Alden L.

doi:10.2307/2330807

Cited by 38 publications

(13 citation statements)

References 7 publications

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“…23 The examples mirror the definition of economic income, which despite its "controversy" portrays an accurate estimate of the intermediary's income condition. 24 In the context of bond portfolio management, Bierwag, Kaufman, and Toevs (1983) illustrate how sequential hedging protects against multiple rate changes. Moreover, Bierwag, Kaufman, and Toevs (1979), Bierwag and Toevs (1982), and Bierwag and Kaufman (1985) show the usefulness of duration and immunization strategies to depository financial institutions.…”

Section: Asset-liability Managementmentioning

confidence: 99%

Financial Intermediaries and Interest Rate Risk: II

Staikouras

2006

Financial Market

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The current work extends and updates the previous survey (Staikouras, 2003) by looking at other aspects of the financial institutions' yield sensitivity. The study starts with an extensive discussion of the origins of asset-liability management and the subsequent work to identify effective ways of measuring and managing interest rate risk. The discussion implicates both regulatory and market-based approaches along with any issues surrounding their applicability. The literature is enriched by recognizing that structural and regulatory shifts affect financial institutions in different ways depending on the size and nature of their activities. It is also noted that such shifts could change the bank's riskiness, and force banks to adjust their balance sheet size by altering their maturity intermediation function. Besides yield changes, market cycles are also held responsible for asymmetric effects on corporate values. Furthermore, nonstandard investigations are considered, where embedded options and basis risk are significant above and beyond the intermediary's rate sensitivity, while shocks to the slope of the yield curve is identified as a new variable. When the discount privilege is modeled as an option, it is shown that its value is incorporated in the equities of qualifying banks. Finally, volatility clustering is further established while constant relative risk aversion is not present in the U.S. market. Although some empirical findings may be quite mixed, there is a general consensus that all forms of systematic risk, risk premia, and the risk-return trade-off do exhibit some form of variability, not only over time but also across corporate sizes and segments.

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Section: Asset-liability Managementmentioning

confidence: 99%

Financial Intermediaries and Interest Rate Risk: II

Staikouras

2006

Financial Market

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“…This paper generalized a number of important immunization theorems. We proved that (1) Fisher and Weil(l97 1) immunization, (2) Bierwag and Khang (1979) minimax, (3) Redington (1952) multiple liabilities, and (4) Bierwag, Kaufman, and Toevs (1983b) coverage theorems can be generalized to the class of affine term structures. We also showed that ratio of assets to liabilities is globally convex whereas the difference is only locally convex.…”

Section: Resultsmentioning

confidence: 99%

“…Redington (1952) established the conditions under which duration matching with multiple liabilities results in local immunization. Bierwag, Kaufman, and Toevs (1983b) determined the conditions under which duration matching with multiple liabilities results in global immunization for level shifts.…”

Section: Introductionmentioning

confidence: 99%

Bond Immunization for Affine Term Structures

Barber

1999

The Financial Review

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“…The data used in the tests are month-end offer quotes by the Bank of America for on-the-run (current coupon) Treasury 3A planning period may also be viewed as the weighted average duration of a series of scheduled future outflows (multiple liabilities), and if the duration measure used is consistent with an equilibrium process, the same portfolio strategies apply (Bierwag, Kaufman, and Toevs [4]). …”

Section: Data and Resultsmentioning

confidence: 99%

Bond Portfolio Immunization: Tests of Maturity, One‐ and Two‐factor Duration Matching Strategies

Bierwag

Kaufman

Latta

1987

The Financial Review

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This paper provides additional evidence on the usefulness of duration as a strategy tool by developing a two‐factor duration model and by using a reasonably reliable database to compare empirically the relative performance of maturity, one‐factor duration, and two‐factor duration matching strategies in immunizing portfolios of default‐free and option‐free bonds against interest rate risk. The results suggest that, on average, duration models, even for arbitrarily assumed simple stochastic processes, are more accurate than maturity models and that increased accuracy may be achieved by increasing the length of the planning period and the number of factors in the model.

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Immunization Strategies for Funding Multiple Liabilities

Cited by 38 publications

References 7 publications

Financial Intermediaries and Interest Rate Risk: II

Financial Intermediaries and Interest Rate Risk: II

Bond Immunization for Affine Term Structures

Bond Portfolio Immunization: Tests of Maturity, One‐ and Two‐factor Duration Matching Strategies

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