Advanced Search
MyIDEAS: Login

Immunization Using a Parametric Model of the Term Structure

Contents:

Author Info

  • Jorge Miguel Ventura Bravo

    ()
    (Department of Economics, University of Évora)

  • Carlos Manuel Pereira da Silva

    (ISEG - School of Economics and Management, Technical University of Lisbon)

Abstract

In this paper, we develop a new immunization model based on a parametric specification of the term structure of interest rates. The model extends traditional duration analysis to account for both parallel and non-parallel term structure shifts that have an economic meaning. Contrary to most interest rate risk models, we analyse both first-order and second-order conditions for bond portfolio immunization and conclude that the key to successful protection will be to build up a bond portfolio such that the gradient of its future value is zero, and such that its Hessian matrix is positive semidefinite. In addition, we provide explicit formulae for new parametric interest rate risk measures and present alternative approaches to implement the immunization strategy. Furthermore, we provide useful expressions for the sensitivity of interest rate risk measures to changes in term structure shape parameters.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10174/8422
Download Restriction: no

Bibliographic Info

Paper provided by University of Évora, Department of Economics (Portugal) in its series Economics Working Papers with number 19_2005.

as in new window
Length: 32 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:evo:wpecon:19_2005

Contact details of provider:
Postal: Largo dos Colegiais 2, 7000 - 803ÉVORA
Phone: + 351 266 74 08 94
Fax: + 351 266 74 24 94
Email:
Web page: http://www.decon.uevora.pt
More information through EDIRC

Related research

Keywords: Immunization; duration; parametric model; interest rate risk;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:evo:wpecon:19_2005. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maria Aurora Murcho Galego).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.