Journal of Finance and Investment Analysis
Enhancement of the bond portfolio Immunization under a parallel shift of the yield curve
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Hedging under a parallel shift of the interest rate curve is well-known for a long date in finance literature. It is based on the use of a duration-convexity approximation essentially pioneered by Fisher-Weil . However the situation is inaccurately formulated such that the obtained result is very questionable. Motivations and enhancement of such approximation have been performed in our recent working paper ,"Enhancement of the Fisher-Weil bond technique immunization". So it is seen that the introduction of a term measuring the passage of time and high order sensitivities lead to very accurate approximation of the zero-coupon price change. As a result, the immunization of a portfolio made by coupon-bearing bonds may be reduced to a non-linear and integer minimization problem. In the present work, we show that actually a mixed-integer linear programming is needed to be considered. This last can be handled by making use of standard solvers as the CPLEX software.
ISSN: 2241-0996 (Online)