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Option-based risk management of a bond portfolio under regime switching interest rates

  • Fabio Antonelli

    ()

  • Alessandro Ramponi

    ()

  • Sergio Scarlatti

    ()

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    In the present paper, we assume an economy with regime switching short rates and show how the Value at Risk of a financial position on zero-coupon bonds, hedged by buying protective put options under budget constraints, can be minimized by selecting optimal (regime-dependent) strike prices. Copyright Springer-Verlag 2013

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    File URL: http://hdl.handle.net/10.1007/s10203-011-0123-1
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    Article provided by Springer & Associazione per la Matematica in its journal Decisions in Economics and Finance.

    Volume (Year): 36 (2013)
    Issue (Month): 1 (May)
    Pages: 47-70

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    Handle: RePEc:spr:decfin:v:36:y:2013:i:1:p:47-70
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    1. Robert Elliott & Rogemar Mamon, 2002. "An interest rate model with a Markovian mean reverting level," Quantitative Finance, Taylor & Francis Journals, vol. 2(6), pages 454-458.
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    7. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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