Hedging Interest Rate Risk by Optimization in Banach Spaces

A. Balbás and R. Romera ()
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A. Balbás: Universidad Carlos III de Madrid
R. Romera: Universidad Carlos III de Madrid

Journal of Optimization Theory and Applications, 2007, vol. 132, issue 1, No 11, 175-191

Abstract: Abstract This paper addresses the hedging of bond portfolios interest rate risk by drawing on the classical one-period no-arbitrage approach of financial economics. Under quite weak assumptions, several maximin portfolios are introduced by means of semi-infinite mathematical programming problems. These problems involve several Banach spaces; consequently, infinite-dimensional versions of classical algorithms are required. Furthermore, the corresponding solutions satisfy a saddle-point condition illustrating how they may provide appropriate hedging with respect to the interest rate risk.

Keywords: Interest rate risk; maximin portfolio; semi-infinite programming (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/s10957-006-9124-6

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