Hedging Against the Interest-rate Risk by Measuring the Yield-curve Movement

Zhongliang Tuo

Papers from arXiv.org

Abstract: By adopting the polynomial interpolation method, we propose an approach to hedge against the interest-rate risk of the default-free bonds by measuring the nonparallel movement of the yield-curve, such as the translation, the rotation and the twist. The empirical analysis shows that our hedging strategies are comparable to traditional duration-convexity strategy, or even better when we have more suitable hedging instruments on hand. The article shows that this strategy is flexible and robust to cope with the interest-rate risk and can help fine-tune a position as time changes.

Date: 2013-12
New Economics Papers: this item is included in nep-rmg
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