The immunisation performance of minimum M-square portfolios

Senay Agca ()

International Journal of Revenue Management, 2007, vol. 1, issue 4, 327-345

Abstract: We examine the immunisation performance of minimum M-square portfolios using a Monte-Carlo simulation in which interest rates evolve according to an exponentially decaying volatility Heath–Jarrow–Morton (1992) model. We consider both duration, and duration and convexity matching immunisation strategies. Our results show that the immunisation performance of minimum M-square portfolios is very sensitive to the holding period. Minimum M-square portfolios have the best performance for short holding periods. However, all minimum M-square portfolios have good immunisation performance irrespective of the risk measure used, especially with duration and convexity matching strategies.

Keywords: immunisation performance; minimum M-square portfolios; Monte-Carlo simulation; revenue management; immunisation strategies; holding periods; interest rate changes; portfolio formation. (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijrevm:v:1:y:2007:i:4:p:327-345

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