The Duration Derby: A Comparison of Duration-Based Strategies in Asset Liability Management

Journal of Bond Trading & Management, Vol. 1, No. 4, pp. 371-80, April 2003

Posted: 17 Sep 2003

See all articles by Harry Zheng

Harry Zheng

Imperial College London - Mathematical Finance

Lyn C. Thomas

University of Southampton - School of Management

David E. Allen

School of Mathematics and Statistics, The University of Sydney; Financial Research Network (FIRN); Department of Finance; School of Business and Law, Edith Cowan University

Multiple version iconThere are 2 versions of this paper

Abstract

In this paper we canvass the use of a duration measure based on approximate duration which has the advantage of not being sensitive to non-parallel shifts in the term structure in the same manner as the Macaulay duration. The paper compares the performance of bond immunization strategies based on this approach with other immunization strategies based on the Macaulay, partial and key rate durations using US Treasury Strips and Bond data. Approximate duration emerges as a useful tool for asset liability management with the following advantages: it is easy to set up and rebalance the optimal portfolio using linear programming, it does not require any short selling of bonds and it does not assume any pattern or structure to changes in interest rates.

Note: This is a description of the paper and not the actual abstract.

Keywords: approximate duration, asset liability management, linear programming

JEL Classification: G11, G12, C63, C41

Suggested Citation

Zheng, Harry and Thomas, Lyn C. and Allen, David Edmund, The Duration Derby: A Comparison of Duration-Based Strategies in Asset Liability Management. Journal of Bond Trading & Management, Vol. 1, No. 4, pp. 371-80, April 2003. Available at SSRN: https://ssrn.com/abstract=444542

Harry Zheng

Imperial College London - Mathematical Finance ( email )

United Kingdom

Lyn C. Thomas

University of Southampton - School of Management ( email )

Highfield
Southampton S017 1BJ, Hampshire SO17 1BJ
United Kingdom
(023) 8059 7718 (Phone)
(023) 8059 3844 (Fax)

David Edmund Allen (Contact Author)

School of Mathematics and Statistics, The University of Sydney ( email )

School of Mathematics and Statistics F07
University of Sydney
Sydney, New South Wales 2006
Australia

HOME PAGE: http://www.maths.usyd.edu.au

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Department of Finance ( email )

Taiwan
Taiwan

School of Business and Law, Edith Cowan University

100 Joondalup Drive
Joondalup, WA 6027
Australia

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

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,422
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information