Stochastic Models for Optimizing Immunization Strategies in Fixed-Income Security Portfolios under Some Sources of Uncertainty

Larraitz Aranburu, Laureano F. Escudero, M. Araceli Garín and Gloria Pérez
Additional contact information
Larraitz Aranburu: Dpto. de Economía Aplicada III, Universidad del País Vasco, Bilbao (Vizcaya), Spain
Laureano F. Escudero: Dpto. Estadística e Investigación Operativa, Universidad Rey Juan Carlos, Móstoles (Madrid), Spain
M. Araceli Garín: Dpto. de Economía Aplicada III, Universidad del País Vasco, Bilbao (Vizcaya), Spain
Gloria Pérez: Dpto. de Matemática Aplicada, Estadística e Investigación Operativa, Universidad del País Vasco, Leioa (Vizcaya), Spain

Chapter 8 in Stochastic Programming:Applications in Finance, Energy, Planning and Logistics, 2013, pp 173-219 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn this paper we present a set of approaches for stochastic optimizing of immunization strategies based on risk averse measures as alternatives to the optimization of the objective function expected value, i.e., in the so-called risk neutral environment. The risk averse measures to consider whose validity is analyzed in this work are as follows: two-stage mean-risk immunization, two-stage and multistage Value-at-Risk strategy, two-stage and multistage stochastic dominance strategy, and a new measure as a mixture of the multistage VaR & stochastic dominance strategies. The common characteristic of these measures is that they require from the modeler a threshold for the objective function value related to each scenario (the recent ones even allow a set of thresholds) and a failure probability when not reaching it. Uncertainty is represented by a scenario tree and is dealt with by both two-stage and multi-stage stochastic (linear and) mixed integer models with complete recourse. We will test the different risk averse strategies presented in the paper by using, as a pilot case, the optimization of the immunization strategies in fixed-income security portfolios under some sources of uncertainty. One of the main differences in the bond portfolio strategies that are proposed in the work and the models that have been encountered in the literature is that we consider an investor who wishes to invest in a market with coupon bonds that have a different level of risk of default.

Keywords: Stochastic Programming; Optimization with Scenarios; Finance; Energy; Production and Logistics Applications (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789814407519_0008 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789814407519_0008 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789814407519_0008

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().