EconPapers    
Economics at your fingertips  
 

Optimal interest rate derivatives portfolio with controlled sensitivities

Konstantinos Kiriakopoulos, George Kaimakamis and Charalambos Botsaris

International Journal of Decision Sciences, Risk and Management, 2010, vol. 2, issue 1/2, 112-128

Abstract: In the interest rate market, the use of derivatives is necessary and can significantly influence the balance sheet of a bank. Moreover, in the light of the recent crisis, it became obvious the need for portfolios with specific and known risk characteristics. This paper proposes a method for constructing optimal portfolios of derivatives with specific risk/return characteristics in the interest rate market. The portfolios can include any interest rate derivative security such as bonds, swaps, caps, floors, swaoptions, CMS, etc. The optimal portfolios will have their risk sensitivities (delta, gamma, theta, etc.) within prespecified bands. In this way, the trade-off between risk and return will be controlled through the life of the portfolio avoiding unwanted risks. The method proposed is structural and dynamic so that it can fit to trading level, risk management level and senior management level. Moreover, the method can include VAR and CVAR techniques which are currently used in risk management.

Keywords: interest rates; derivatives; portfolio sensitivities; stochastic control; risks; returns; risk management; CVAR; conditional VAR; value at risk. (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.inderscience.com/link.php?id=34675 (text/html)
Access to full text is restricted to subscribers.

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:ids:ijdsrm:v:2:y:2010:i:1/2:p:112-128

Access Statistics for this article

More articles in International Journal of Decision Sciences, Risk and Management from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Carmel O'Grady ().

 
Page updated 2018-05-21
Handle: RePEc:ids:ijdsrm:v:2:y:2010:i:1/2:p:112-128