Immunization Derived from a Polynomial Duration Vector in the Spanish Bond Market

Posted: 16 May 2007

See all articles by Gloria M. Soto

Gloria M. Soto

University of Murcia - Faculty of Business and Economics

Abstract

This paper focuses on the Spanish government debt market in an attempt to evaluate the immunization performance of the polynomial duration model of Chambers and Carleton (Chambers, D.R., Carleton, W.T., 1988. A generalized approach to duration. In: Chen, A.H. (Ed.), Research in Finance, vol. 7, JAI Press, Greenwich, pp. 163-181), in default-free and option-free fixed-income portfolios and to ascertain whether traditional convexity is an earnings-generating element. Empirical tests show that three constraints, namely those related to the level, slope and curvature of term structure shifts, are necessary to guarantee a return close to the target. The only exception to this rule is found in portfolios including an asset that matures near the horizon date, in which classical immunization performs properly.

Keywords: Immunization, Duration, Convexity, Portfolio management, Term structure

JEL Classification: E43, G11

Suggested Citation

Soto, Gloria M., Immunization Derived from a Polynomial Duration Vector in the Spanish Bond Market. Journal of Banking & Finance, Vol. 25, No. 6, June 2001. Available at SSRN: https://ssrn.com/abstract=985402

Gloria M. Soto (Contact Author)

University of Murcia - Faculty of Business and Economics ( email )

Spain

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