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

Author

Listed:
  • Zheng, H.
  • Thomas, L.C.
  • Allen, D.E.

Abstract

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.

Suggested Citation

  • Zheng, H. & Thomas, L.C. & Allen, D.E., 2001. "The Duration Derby: A Comparison of Duration Based Strategies in Asset Liability Management," Papers 01-176, University of Southampton - Department of Accounting and Management Science.
    • Handle: RePEc:fth:sotoam:01-176
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    Citations

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    Cited by:

    1. Pascal François & Sophie Pardo, 2015. "Prepayment risk on callable bonds: theory and test," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 38(2), pages 147-176, October.
    2. Zaremba Leszek, 2017. "Does Macaulay Duration Provide The Most Cost-Effective Immunization Method – A Theoretical Approach," Foundations of Management, Sciendo, vol. 9(1), pages 99-110, February.
    3. R. B. Vinter & H. Zheng, 2003. "Some Finance Problems Solved with Nonsmooth Optimization Techniques," Journal of Optimization Theory and Applications, Springer, vol. 119(1), pages 1-18, October.
    4. Harry Zheng, 2007. "Macaulay durations for nonparallel shifts," Annals of Operations Research, Springer, vol. 151(1), pages 179-191, April.

    More about this item

    Keywords

    IMMUNIZATION ; PRICES ; BONDS ; INTEREST RATE;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G1 - Financial Economics - - General Financial Markets

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