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Hedging Interest Rate Risk by Optimization in Banach Spaces

Author

Listed:
  • A. Balbás

    (Universidad Carlos III de Madrid)

  • R. Romera

    (Universidad Carlos III de Madrid)

Abstract

This 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, infinite-dimensional 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.

Suggested Citation

  • A. Balbás & R. Romera, 2007. "Hedging Interest Rate Risk by Optimization in Banach Spaces," Journal of Optimization Theory and Applications, Springer, vol. 132(1), pages 175-191, January.
    • Handle: RePEc:spr:joptap:v:132:y:2007:i:1:d:10.1007_s10957-006-9124-6
    DOI: 10.1007/s10957-006-9124-6
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    References listed on IDEAS

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