A risk minimizing strategy for portfolio immunization

Article Abstract:

Immunization conditions are investigated by considering a fixed-income portfolio whose duration is equal to the length of a given investment deadline. There is demonstrated to be a lower limit, which is the product of two terms, on the change in the end-of-horizon value of an immunized portfolio for an arbitrary interest rate change. One of these terms is only a function of the interest rate change, and the other depends solely on the structure of the portfolio. This second term provides the degree of immunization risk; when it is minimized, the interest rate change which the portfolio is exposed to is minimal.

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Hedging interest rate risk with futures portfolios under term structure effects

Article Abstract:

A methodology for reducing interest rate risk in a fixed spot portfolio of assets and liabilities with default-free cash flows is developed and tested. By adding a portfolio of financial futures to the spot portfolio, a minimum variance hedge is constructed. Theorems are developed which establish necessary and sufficient conditions for the existence of unique and zero-variance hedges. An empirical analysis demonstrates the risk reduction characteristics of the methodology.

Financial futures

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Risk management with derivatives by dealers and market quality in government bond markets

Article Abstract:

The article examines how interest rate futures are used by bond dealers to manage core business risk. Futures are used to hedge changes in spot exposure and take directional bets. Findings support capital constraints price effects.

United Kingdom, Management dynamics, Security brokers and dealers, Securities Brokerage, Asset & Risk Management, Bond Brokerage, Management, Company business management, Bond brokers, Interest rate futures, Brokers, Bond

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