Immunizing Default-Free Bond Portfolios with a Duration Vector

Chambers, Donald R.; Carleton, Willard T.; McEnally, Richard W.

doi:10.2307/2331026

Cited by 96 publications

(48 citation statements)

References 12 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This is what Chambers, Carleton, and McEnally [1988] investigated and they did find an improvement in immunizing the terminal values of the portfolio, when transaction costs are ignored.…”

Section: Macaulay and Partial Durationsmentioning

confidence: 75%

The Duration Derby: A Comparison of Duration Based Strategies in Asset Liability Management

2001

View full text Add to dashboard Cite

Macaulay duration matched strategy is a key tool in bond portfolio immunization. It is well known that if term structures are not flat or changes are not parallel, then Macaulay duration matched portfolio can not guarantee adequate immunization. In this paper the approximate duration is proposed to measure the bond price sensitivity to changes of interest rates of nonflat term structures. Its performance in immunization is compared with those of Macaulay, partial and key rate durations using the US Treasury STRIPS and Bond data. Approximate duration turns out to be a possible contender in asset liability management: it does not assume any particular structures or patterns of changes of interest rates, it does not need short selling of bonds, and it is easy to set up and rebalance the optimal portfolio with linear programming.

show abstract

“…This is what Chambers, Carleton, and McEnally [1988] investigated and they did find an improvement in immunizing the terminal values of the portfolio, when transaction costs are ignored.…”

Section: Macaulay and Partial Durationsmentioning

confidence: 75%

The Duration Derby: A Comparison of Duration Based Strategies in Asset Liability Management

2001

View full text Add to dashboard Cite

show abstract

“…Bierwag et al (1993) showed that among matching duration portfolios, the inclusion of a maturity matching bond works best empirically. Balb a as and Ib a añ nez (1998) illustrated with examples that the matching duration portfolio that minimizes theÑ N measure usually requires a matu-2 For instance, parallel shifts or other non-parallel shifts (Bierwag, 1977;Chambers et al, 1988;Prisman and Shores, 1988), shifts in an equilibrium models context (Cox et al, 1979;Brennan and Schwartz, 1983), or empirically estimated shifts (Litterman and Scheinkman, 1991;Chance and Jordan, 1996;and others). Furthermore, most of these strategies require no short selling constraints.…”

Section: Introductionmentioning

confidence: 99%

Dispersion measures as immunization risk measures

Balbás

Ibáñez

López

2002

Journal of Banking & Finance

View full text Add to dashboard Cite

The quadratic and linear cash flow dispersion measures M 2 andÑ N are two immunization risk measures designed to build immunized bond portfolios. This paper generalizes these two measures by showing that any dispersion measure is an immunization risk measure and therefore, it sets up a tool to be used in empirical testing. Each new measure is derived from a different set of shocks (changes on the term structure of interest rates) and depends on the corresponding subset of worst shocks. Consequently, a criterion for choosing appropriate immunization risk measures is to take those developed from the most reasonable sets of shocks and the associated subset of worst shocks and then select those that work best empirically. Adopting this approach, this paper then explores both numerical examples and a short empirical study on the Spanish Bond Market in the mid-1990s to show that measures between linear and quadratic are the most appropriate, and amongst them, the linear measure has the best properties. This confirms previous studies on US and Canadian markets that maturityconstrained-duration-matched portfolios also have good empirical behavior. Ó

show abstract

“…The firsts assume that the term structure can be represented by a function of few risk factors multiplied by their loadings -usually polynomials and exponential functions -and base the hedging strategy in a first order multivariate Taylor expansion of the fixed income portfolio value. Some examples of this approach using polynomials are: Cooper (1977), Garbade (1985), Chambers et al (1988) and Prisman and Shores (1988). Willner (1996) carries out an immunization using the model described in Nelson and Siegel (1987).…”

mentioning

confidence: 99%

Immunization of Fixed-Income Portfolios Using an Exponential Parametric Model

Lund¹,

Almeida²

2014

Brazilian Review of Econometrics

View full text Add to dashboard Cite

Litterman and Scheinkman (1991) showed that even a duration immunized fixed-income portfolio (neutral) can bear great losses and, therefore, propose hedging the portfolio using a principal component's analysis. The problem is that this approach is only possible when the interest rates are observable. Therefore, when the interest rates are not observable, as is the case of most international and domestic debt markets in many emerging market economies, it is not possible to apply this method directly. The present study proposes an alternative approach: hedging based on factors of a parametric term structure model. The immunization done using this approach is not only simple and efficient but also equivalent to the immunization procedure proposed by Litterman and Scheinkman when the rates are observable. Examples of the method for hedging and leveraging operations in the Brazilian inflation-indexed public debt securities market are presented. This study also describes how to construct and to price portfolios that replicate the model risk factors, which makes possible to extract some information on the expectations of agents in regards to future behavior of the interest rate curve.

show abstract

Immunizing Default-Free Bond Portfolios with a Duration Vector

Cited by 96 publications

References 12 publications

The Duration Derby: A Comparison of Duration Based Strategies in Asset Liability Management

The Duration Derby: A Comparison of Duration Based Strategies in Asset Liability Management

Dispersion measures as immunization risk measures

Immunization of Fixed-Income Portfolios Using an Exponential Parametric Model

Contact Info

Product

Resources

About