Hostname: page-component-6d856f89d9-5pczc Total loading time: 0 Render date: 2024-07-16T06:59:45.739Z Has data issue: false hasContentIssue false
  • English
  • Français

A Dynamic Global Portfolio Immunization Strategy in the World of Multiple Interest Rate Changes: A Dynamic Immunization and Minimax Theorem

Published online by Cambridge University Press:  06 April 2009

Chulsoon Khang
Get access Rights & Permissions [Opens in a new window]

Extract

Recent studies by Fisher and Weil [7], Bierwag [2], [3], Bierwag and Kaufman [5], and Khang [9] demonstrate that it is possible to immunize a portfolio of default-free assets against unexpected interest rate changes so that at the end of the planning period the investor will realize at least the returns expected at purchase. However, this immunization strategy is applicable for the case in which the change in unexpected interest rate occurs only once at the instant after the purchase of the asset. Obviously, the case depicted above is not likely to resemble the real world situation in at least two respects. First, the interest rate change is likely to occur at any time and, second, the interest rate change is likely to occur many times during the investor's planning period.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 18 , Issue 3 , September 1983 , pp. 355 - 363
Copyright
Copyright © School of Business Administration, University of Washington 1983

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Babbel, D. F. “Duration and the Term Structure of Interest Rate Volatility.” In Innovations in Bond Portfolio Management: Duration Analysis and Immunization, Bierwag, G. O., Kaufman, G. G., and Toevs, A., eds. Greenwich, CT: JAI Press (1982).Google Scholar
[2]Bierwag, G. O. “Immunization, Duration, and the Term Structure of Interest Rates,” Journal of Financial and Quantitative Analysis, Vol. 12 (12 1977), pp. 725–743.Google Scholar
[3]Bierwag, G. O. “Measures of Duration.” Economic Inquiry, Vol. 16 (10 1978), pp. 497–507.CrossRefGoogle Scholar
[4]Bierwag, G. O. “Dynamic Portfolio Immunization Policies.” Journal of Banking and Finance, Vol. 3 (04 1979), pp. 23–41.Google Scholar
[5]Bierwag, G. O., and Kaufman, G. G.. “Coping with the Risk of Interest Rate Fluctuations: A Note.” Journal of Business, Vol. 50 (07 1977), pp. 364–370.CrossRefGoogle Scholar
[6]Bierwag, G. O., and Khang, C.. “An Immunization Strategy is a Minimax Strategy.” Journal of Finance, Vol. 34 (05 1979), pp. 389–399.CrossRefGoogle Scholar
[7]Fisher, L., and Weil, R. L.. “Coping with the Risk of Interest Rate Fluctuations: Returns to Bondholders from Naive and Optimal Strategies.” Journal of Business, Vol. 44 (10 1971), pp. 408–431.Google Scholar
[8]Hertzberg, D. “Money Managers Quitting Big Institutions for Rewards of Starting Their Own Firms.” The Wall Street Journal (01 6, 1982).Google Scholar
[9]Khang, C. “Bond Immunization When Short-Term Interest Rates Fluctuate More than Long-Term Rates.” Journal of Financial and Quantitative Analysis, Vol. 14 (12 1979), pp. 1085–1090.CrossRefGoogle Scholar