Partial Immunization Bounds and Non-Parallel Term Structure Shifts

Poitras, Geoffrey

doi:10.1142/s2010495213500061

Cited by 3 publications

(3 citation statements)

References 33 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The classical fixed income interest rate immunization model uses a univariate Taylor series expansion to derive two rules for immunizing a zero surplus fixed income portfolio against a change in the level of interest rates: 1) match the duration of cash inflows (assets) and outflows (liabilities); and, 2) set the asset cash flows to have more dispersion (convexity) than the liability cash flows around that duration, e.g., Redington (1952), Shiu (1987Shiu ( , 1990, Reitano (1991aReitano ( , 1991bReitano ( , 1992Reitano ( , 1996, and Poitras (2007and Poitras ( , 2013. 8 In the classical case of a fixed income portfolio associated with a life insurance or pension company, surplus immunization is structured around the balance sheet of an individual fund.…”

Section: Basics Of Systemic Interest Rate Risk Immunizationmentioning

confidence: 99%

“…The classical fixed income portfolio immunization model is extended to assess the implications of systemic interest rate and house price risk, e.g., Redington (1952), Reitano (1991a,b), and Poitras (2007and Poitras ( , 2013. It is demonstrated that shortening mortgage term to maturity and having a 'yield maintenance' prepayment penalty reduces the systemic risk inherent in the origination of long amortization period, single-family residential mortgages.…”

Section: Introductionmentioning

confidence: 99%

“…From that beginning, a number of improvements to Redington's classical immunization rules have been proposed, aimed at relaxing limitations in this classical formulation(Poitras, 2007(Poitras, , 2013. While some limited progress has been made toward incorporating default risk into the immunization problem, e.g.,Fooladi, Roberts, and Skinner (1997),Chance (1990), particular attention has been given to generalizing the classical model to allow for non-parallel shifts in the yield curve.…”

mentioning

confidence: 99%

See 2 more Smart Citations

Mortgage contract design and systemic risk immunization

Poitras

Zanotti

2016

International Review of Financial Analysis

Self Cite

View full text Add to dashboard Cite

Section: Basics Of Systemic Interest Rate Risk Immunizationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

See 1 more Smart Citation

Mortgage contract design and systemic risk immunization

Poitras

Zanotti

2016

International Review of Financial Analysis

Self Cite

View full text Add to dashboard Cite

Approximate Series Solutions of a One-Factor Term Structure Model for Bond Pricing

et al. 2021

View full text Add to dashboard Cite

One-factor term structure model in finance and economic setups conveys the opinion that there exists only one Brownian process in the formulation of the short rate model as one source of randomness. To extend the theory, in this paper, we develop the approximate solution of a one-factor bond pricing model that can be used to obtain solutions of both nonlinear and multi-factor models and get applications of two proposed solution methods: Elzaki Adomian decomposition method (EADM) and Laplace Adomian decomposition solution method (LADM). We first obtain an efficient, reliable and approximate-analytical solution for a one-factor bond pricing model. We provide illustrative examples that are in good agreement when compared with those already in literature. The methods are very effective in the application being the modified version of the classical Elzaki, and Laplace transforms. Since our proposed methods are effective and efficient, we recommend academics and practitioners apply our proposed model to obtain solutions for some financial models, including both the multi-factor and nonlinear models.

show abstract

Immunization Strategies for Funding Multiple Inflation-Linked Retirement Income Benefits

Simões

Oliveira

Bravo

2021

Risks

View full text Add to dashboard Cite

Protecting against unexpected yield curve, inflation, and longevity shifts are some of the most critical issues institutional and private investors must solve when managing post-retirement income benefits. This paper empirically investigates the performance of alternative immunization strategies for funding targeted multiple liabilities that are fixed in timing but random in size (inflation-linked), i.e., that change stochastically according to consumer price or wage level indexes. The immunization procedure is based on a targeted minimax strategy considering the M-Absolute as the interest rate risk measure. We investigate to what extent the inflation-hedging properties of ILBs in asset liability management strategies targeted to immunize multiple liabilities of random size are superior to that of nominal bonds. We use two alternative datasets comprising daily closing prices for U.S. Treasuries and U.S. inflation-linked bonds from 2000 to 2018. The immunization performance is tested over 3-year and 5-year investment horizons, uses real and not simulated bond data and takes into consideration the impact of transaction costs in the performance of immunization strategies and in the selection of optimal investment strategies. The results show that the multiple liability immunization strategy using inflation-linked bonds outperforms the equivalent strategy using nominal bonds and is robust even in a nearly zero interest rate scenario. These results have important implications in the design and structuring of ALM liability-driven investment strategies, particularly for retirement income providers such as pension schemes or life insurance companies.

show abstract

Partial Immunization Bounds and Non-Parallel Term Structure Shifts

Cited by 3 publications

References 33 publications

Mortgage contract design and systemic risk immunization

Mortgage contract design and systemic risk immunization

Approximate Series Solutions of a One-Factor Term Structure Model for Bond Pricing

Immunization Strategies for Funding Multiple Inflation-Linked Retirement Income Benefits

Contact Info

Product

Resources

About