The duration derby: A comparison of duration-based strategies in asset liability management
The duration derby: A comparison of duration-based strategies in asset liability management
Macaulay duration matched strategy is a key tool in bond portfolio immunization. It is well known that if term structures are not flat or changes are not parallel, then Macaulay duration matched portfolio can not guarantee adequate immunization. In this paper the approximate duration is proposed to measure the bond price sensitivity to changes of interest rates of non-flat term structures.
Its performance in immunization is compared with those of Macaulay, partial and key rate durations using the US Treasury STRIPS and Bond data. Approximate duration turns out to be a possible contender in asset liability management: it does not assume any particular structures or patterns of changes of interest rates, it does not need short selling of bonds, and it is easy to set up and rebalance the optimal portfolio with linear programming.
approximate duration, asset liability management, linear programming
371-380
Zheng, Harry
a959cd03-ced4-4102-8f4b-1b57a6f27941
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Allen, David E.
74df427c-ff62-4280-b16c-9d43b9767c3a
2003
Zheng, Harry
a959cd03-ced4-4102-8f4b-1b57a6f27941
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Allen, David E.
74df427c-ff62-4280-b16c-9d43b9767c3a
Zheng, Harry, Thomas, Lyn C. and Allen, David E.
(2003)
The duration derby: A comparison of duration-based strategies in asset liability management.
Journal of Bond Trading and Management, 1 (4), .
Abstract
Macaulay duration matched strategy is a key tool in bond portfolio immunization. It is well known that if term structures are not flat or changes are not parallel, then Macaulay duration matched portfolio can not guarantee adequate immunization. In this paper the approximate duration is proposed to measure the bond price sensitivity to changes of interest rates of non-flat term structures.
Its performance in immunization is compared with those of Macaulay, partial and key rate durations using the US Treasury STRIPS and Bond data. Approximate duration turns out to be a possible contender in asset liability management: it does not assume any particular structures or patterns of changes of interest rates, it does not need short selling of bonds, and it is easy to set up and rebalance the optimal portfolio with linear programming.
This record has no associated files available for download.
More information
Published date: 2003
Additional Information:
this article is also available as a working paper
Keywords:
approximate duration, asset liability management, linear programming
Identifiers
Local EPrints ID: 35672
URI: http://eprints.soton.ac.uk/id/eprint/35672
ISSN: 1476-1688
PURE UUID: 3d3366b0-5cca-4747-910a-f33aec05d4fe
Catalogue record
Date deposited: 25 May 2006
Last modified: 11 Dec 2021 15:29
Export record
Contributors
Author:
Harry Zheng
Author:
Lyn C. Thomas
Author:
David E. Allen
Download statistics
Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.
View more statistics