A Tactical Approach to Managing Interest Rate Risk in Investment Portfolios

9 Pages Posted: 14 May 2013 Last revised: 21 Jun 2013

See all articles by Patrick Beaudan

Patrick Beaudan

Northern Trust Corporation; Emotomy

Date Written: May 13, 2013

Abstract

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

Beaudan, Patrick, A Tactical Approach to Managing Interest Rate Risk in Investment Portfolios (May 13, 2013). Available at SSRN: https://ssrn.com/abstract=2264512 or http://dx.doi.org/10.2139/ssrn.2264512

Patrick Beaudan (Contact Author)

Northern Trust Corporation ( email )

50 South LaSalle Street
Chicago, IL 60603
United States
415 839 5239 (Phone)

Emotomy ( email )

2 Embarcadero Center
San Francisco, CA 94111
United States

HOME PAGE: http://www.emotomy.com

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