A Tactical Approach to Managing Interest Rate Risk in Investment Portfolios
9 Pages Posted: 14 May 2013 Last revised: 21 Jun 2013
Date Written: May 13, 2013
This paper presents a simple approach to dynamically embed the risk of rising interest rates in any investment portfolio that includes fixed income securities. It illustrates the approach using a singular perturbation of U.S. treasury rates that can be used either to stress-test investment strategies, or to incorporate an investor’s view on likely future interest rate moves in portfolio allocation decisions. This approach can be used by both discretionary and systematic investors without restriction on or prejudice to the particular investment philosophy that is employed.
Keywords: interest rates, portfolio alloations, dynamic, quantitative investment strategy, risk parity
JEL Classification: C22, G11
Suggested Citation: Suggested Citation