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The Performance of Alternative Interest Rate Risk Measures and Immunization Strategies under a Heath-Jarrow-Morton Framework

Published online by Cambridge University Press:  06 April 2009

Senay Agca
Senay Agca
Affiliation:
sagca@gwu.edu, George Washington University, 2023 G St NW, Lisner Hall 540G, Washington, DC 20052.
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Abstract

Using a Monte Carlo simulation, this study addresses the question of how traditional risk measures and immunization strategies perform when the term structure evolves in a Heath-Jarrow-Morton (1992) manner. The results suggest that, for immunization purposes, immunization strategies and portfolio formation strategies are more important than interest rate risk measures. The performance of immunization strategies depends more on the transaction costs and the holding period than on the risk measures. Moreover, the immunization performance of bullet and barbell portfolios is not very sensitive to interest rate risk measures.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 40 , Issue 3 , September 2005 , pp. 645 - 669
Copyright
Copyright © School of Business Administration, University of Washington 2005

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