Portfolio Design and the Goal of Immunization

26 Pages Posted: 14 May 2007

See all articles by Gloria M. Soto

Gloria M. Soto

University of Murcia - Faculty of Business and Economics

Maria A. Prats

Universidad de Murcia - Dpto. Economia Aplicada

Date Written: June 2003

Abstract

In this paper, we analyze the influence of portfolio design on the goal of immunization in Spanish bond portfolios. Extending the work of Fooladi and Roberts (1992) and Bierwag et al. (1993), we test a wide set of strategies which includes duration-matching strategies and strategies based on the M-squared of Fong and Vasicek (1984) and the M-absolute of Nawalkha and Chambers (1996). We attempt to evaluate the effectiveness of these dispersion measures and justify the improvements in immunization when portfolios include a bond maturing near the horizon date.

Keywords: immunization, duration, interest rate, risk management, fixed income

JEL Classification: E43, G11

Suggested Citation

Soto, Gloria M. and Prats, Maria A., Portfolio Design and the Goal of Immunization (June 2003). Available at SSRN: https://ssrn.com/abstract=985403 or http://dx.doi.org/10.2139/ssrn.985403

Gloria M. Soto (Contact Author)

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

Spain

Maria A. Prats

Universidad de Murcia - Dpto. Economia Aplicada ( email )

30100 Murcia
Spain

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