Hedging Interest Rate Risk by Optimization in Banach Spaces
AbstractThis paper addresses the hedging of bond portfolios interest rate risk by drawing on the classical one-period no-arbitrage approach of financial economics. Under quite weak assumptions, several maximin portfolios are introduced by means of semi-infinite mathematical programming problems. These problems involve several Banach spaces; consequently, infinitedimensional versions of classical algorithms are required. Furthermore, the corresponding solutions satisfy a saddle-point condition illustrating how they may provide appropriate hedging with respect to the interest rate risk.
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Bibliographic InfoPaper provided by Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/12970.
Length: 193 p.
Date of creation: 2007
Date of revision:
Publication status: Published in Journal of Optimization Theory and Application (2007) v.v. 132, p.175-191
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Web page: http://www.uc3m.es
Interest rate risk; Maximin portfolio; Semi-infinite programming;
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- Fong, H Gifford & Vasicek, Oldrich A, 1984. " A Risk Minimizing Strategy for Portfolio Immunization," Journal of Finance, American Finance Association, vol. 39(5), pages 1541-46, December.
- Bierwag, Gerald O. & Fooladi, Iraj & Roberts, Gordon S., 1993. "Designing an immunized portfolio: Is M-squared the key?," Journal of Banking & Finance, Elsevier, vol. 17(6), pages 1147-1170, December.
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