Parametric Immunization in Bond Portfolio Management
Autor(a) principal: | |
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Data de Publicação: | 2012 |
Outros Autores: | |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10174/7345 |
Resumo: | In this paper, we evaluate the relative immunization performance of the multifactor parametric interest rate risk model based on the Nelson-Siegel-Svensson specification of the yield curve with that of standard benchmark investment strategies, using European Central Bank yield curve data in the period between January 3, 2005 and December 31, 2011. In addition, we examine the role of portfolio design in the success of immunization strategies, particularly the role of the maturity bond. Considering multiperiod tests, the goal is to assess, in a highly volatile interest rate period, whether the use of the multifactor parametric immunization model contributes to improve immunization performance when compared to traditional single-factor duration strategies and whether durationmatching portfolios constrained to include a bond maturing near the end of the holding period prove to be an appropriate immunization strategy. Empirical results show that: (i) immunization models (single- and multi-factor) remove most of the interest rate risk underlying a naïve or maturity strategy; (ii) duration-matching portfolios constrained to include the maturity bond and formed using a single-factor model outperform the traditional duration-matching portfolio set up using a ladder portfolio and provide appropriate protection against interest rate risk; (iii) the multifactor parametric model outperforms all the other non-duration and duration-matching strategies, behaving almost like a perfect immunization asset; (iv) these results are consistent to changes in the rebalancing frequency of bond portfolios. |
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Parametric Immunization in Bond Portfolio ManagementImmunizationDurationInterest rateRisk ManagementPortfolio ManagementIn this paper, we evaluate the relative immunization performance of the multifactor parametric interest rate risk model based on the Nelson-Siegel-Svensson specification of the yield curve with that of standard benchmark investment strategies, using European Central Bank yield curve data in the period between January 3, 2005 and December 31, 2011. In addition, we examine the role of portfolio design in the success of immunization strategies, particularly the role of the maturity bond. Considering multiperiod tests, the goal is to assess, in a highly volatile interest rate period, whether the use of the multifactor parametric immunization model contributes to improve immunization performance when compared to traditional single-factor duration strategies and whether durationmatching portfolios constrained to include a bond maturing near the end of the holding period prove to be an appropriate immunization strategy. Empirical results show that: (i) immunization models (single- and multi-factor) remove most of the interest rate risk underlying a naïve or maturity strategy; (ii) duration-matching portfolios constrained to include the maturity bond and formed using a single-factor model outperform the traditional duration-matching portfolio set up using a ladder portfolio and provide appropriate protection against interest rate risk; (iii) the multifactor parametric model outperforms all the other non-duration and duration-matching strategies, behaving almost like a perfect immunization asset; (iv) these results are consistent to changes in the rebalancing frequency of bond portfolios.INEAG - RESEARCH AND TRAINING INSTITUTE OF EAST AEGEAN2013-01-16T10:18:35Z2013-01-162012-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articlehttp://hdl.handle.net/10174/7345http://hdl.handle.net/10174/7345engBravo, J. M. and Fonseca, J. (2012). Parametric Immunization in Bond Portfolio Management. Proceedings of the 9th AFE International Conference on Applied Financial Economics, ISBN: 978-618-5009-01-4978-618-5009-01-4jbravo@uevora.ptnd9th AFE International Conference on Applied Financial Economics, Samos - Greece645Bravo, JorgeFonseca, Joséinfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2024-01-03T18:47:24Zoai:dspace.uevora.pt:10174/7345Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-20T01:01:51.466178Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Parametric Immunization in Bond Portfolio Management |
title |
Parametric Immunization in Bond Portfolio Management |
spellingShingle |
Parametric Immunization in Bond Portfolio Management Bravo, Jorge Immunization Duration Interest rate Risk Management Portfolio Management |
title_short |
Parametric Immunization in Bond Portfolio Management |
title_full |
Parametric Immunization in Bond Portfolio Management |
title_fullStr |
Parametric Immunization in Bond Portfolio Management |
title_full_unstemmed |
Parametric Immunization in Bond Portfolio Management |
title_sort |
Parametric Immunization in Bond Portfolio Management |
author |
Bravo, Jorge |
author_facet |
Bravo, Jorge Fonseca, José |
author_role |
author |
author2 |
Fonseca, José |
author2_role |
author |
dc.contributor.author.fl_str_mv |
Bravo, Jorge Fonseca, José |
dc.subject.por.fl_str_mv |
Immunization Duration Interest rate Risk Management Portfolio Management |
topic |
Immunization Duration Interest rate Risk Management Portfolio Management |
description |
In this paper, we evaluate the relative immunization performance of the multifactor parametric interest rate risk model based on the Nelson-Siegel-Svensson specification of the yield curve with that of standard benchmark investment strategies, using European Central Bank yield curve data in the period between January 3, 2005 and December 31, 2011. In addition, we examine the role of portfolio design in the success of immunization strategies, particularly the role of the maturity bond. Considering multiperiod tests, the goal is to assess, in a highly volatile interest rate period, whether the use of the multifactor parametric immunization model contributes to improve immunization performance when compared to traditional single-factor duration strategies and whether durationmatching portfolios constrained to include a bond maturing near the end of the holding period prove to be an appropriate immunization strategy. Empirical results show that: (i) immunization models (single- and multi-factor) remove most of the interest rate risk underlying a naïve or maturity strategy; (ii) duration-matching portfolios constrained to include the maturity bond and formed using a single-factor model outperform the traditional duration-matching portfolio set up using a ladder portfolio and provide appropriate protection against interest rate risk; (iii) the multifactor parametric model outperforms all the other non-duration and duration-matching strategies, behaving almost like a perfect immunization asset; (iv) these results are consistent to changes in the rebalancing frequency of bond portfolios. |
publishDate |
2012 |
dc.date.none.fl_str_mv |
2012-01-01T00:00:00Z 2013-01-16T10:18:35Z 2013-01-16 |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10174/7345 http://hdl.handle.net/10174/7345 |
url |
http://hdl.handle.net/10174/7345 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Bravo, J. M. and Fonseca, J. (2012). Parametric Immunization in Bond Portfolio Management. Proceedings of the 9th AFE International Conference on Applied Financial Economics, ISBN: 978-618-5009-01-4 978-618-5009-01-4 jbravo@uevora.pt nd 9th AFE International Conference on Applied Financial Economics, Samos - Greece 645 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.publisher.none.fl_str_mv |
INEAG - RESEARCH AND TRAINING INSTITUTE OF EAST AEGEAN |
publisher.none.fl_str_mv |
INEAG - RESEARCH AND TRAINING INSTITUTE OF EAST AEGEAN |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
instname_str |
Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
instacron_str |
RCAAP |
institution |
RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
collection |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
repository.name.fl_str_mv |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
repository.mail.fl_str_mv |
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1799136502503964672 |