Total Portfolio Duration: A New Perspective on Asset Allocation

Leibowitz, Martin L.

doi:10.2469/faj.v42.n5.18

Cited by 70 publications

(25 citation statements)

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“…al. (1975), Shiller (1981) and more recently have been extended to account for uncertain expectations of corporate cash flows by Copeland and Stapleton (1993) and for inflation indexation by Leibowitz (1986). Inflation indexation is crucial in this context, because an equity is, in many respects, more like an index-linked bond than a fixedrate bond.…”

Section: Previous Studies Of Equity Volatilitymentioning

confidence: 99%

The Determinants of Implied Volatility: A Test Using LIFFE Option Prices

Copeland

Poon

Stapleton

2000

Business Fin & Account

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This paper presents and tests a model of the volatility of individual companies' stocks, using implied volatilities derived from option prices. The data comes from traded options quoted on the London International Financial Futures Exchange. The model relates equity volatilities to corporate earnings announcements, interest-rate volatility and to four determining variables representing leverage, the degree of fixed-rate debt, asset duration and cash flow inflation indexation. The model predicts that equity volatility is positively related to duration and leverage and negatively related to the degree of inflation indexation and the proportion of fixed-rate debt in the capital structure. Empirical results suggest that duration, the proportion of fixed-rate debt, and leverage are significantly related to implied volatility. Regressions using all four determining variables explain approximately 30% of the cross-sectional variation in volatility. Time series tests confirm an expected drop in volatility shortly after the earnings announcement and in most cases a positive relationship between the volatility of the stock and the volatility of interest rates. Copyright Blackwell Publishers Ltd 2000.

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Section: Previous Studies Of Equity Volatilitymentioning

confidence: 99%

The Determinants of Implied Volatility: A Test Using LIFFE Option Prices

Copeland

Poon

Stapleton

2000

Business Fin & Account

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“…In a modified form it is primarily used for portfolio hedging purposes, [11]. It can be also used in the Asset-Liability management of commercial banks, [13]. The most common use, however, is in controlling interest rate risk, [14].…”

Section: Methodsmentioning

confidence: 99%

Loan Recovery Monitoring Mechanism

Sah¹

2015

IJTEF

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Abstract-This paper proposes the use of Macaulay Duration as an operational and objective measure of the performance of loan repayments. It uses the Macaulay Duration measure to calculate the Duration of an individual loan and shows how changes in calculated Duration vary over time with loan repayments, prepayments or defaults. These changes in Duration are used to provide an objective measure for the repayment performance of loans. The duration approach also allows the construction of a numerical measure for the loan repayment performance of a portfolio of loans that has unique characteristics, or for the overall loan repayment performance of a financial institution or a larger economic region. The model is ideally suited for Microcredit institutions that are scarce on resources to monitor their loan portfolios.

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“…By 1985, "we continue to diversify because we believe in equities for the long run, but we have immunized some of our liabilities using long duration bond portfolios; this allows us to insist that our actuaries raise their discount rate and lower our liabilities; matching some of the liabilities lowers our risk, so we can increase our allocation to equities; Marty Leibowitz (1986) at Salomon Brothers showed us how, have you read his research reports? "…”

Section: Risk Managementmentioning

confidence: 99%

The Intersection of Pensions and Enterprise Risk Management

Gold¹

2008

Frontiers in Pension Finance

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For most of the last forty years, corporate defined benefit pension plan assets have been managed to balance risk versus reward in more or less the same way that a risk averse individual would do with his own portfolio. Recently liability cognizant strategies have been developed, but these also attempt to balance risks and rewards.But pension plans are not individuals; they, much like their widely-held corporate sponsors, are pass-through institutions. The economics of such entities are found in the corporate finance literature rather than in the literature of portfolio choice. The corporate finance (and thus the pension finance) objective is economic value added rather than return for risk.Enterprise risk management is a corporate finance activity too and its goal should also be value added rather than return for risk. The intersection of enterprise risk management and pension finance leads to a value-based discipline with two startling results:• Widely-held corporations can increase shareholder value by hedging away their own systematic risk (e.g., CAPM β).• Very many corporate defined benefit pension plans should define their liabilities and manage their assets to develop a net short equity exposure (negative β).

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Total Portfolio Duration: A New Perspective on Asset Allocation

Cited by 70 publications

References 1 publication

The Determinants of Implied Volatility: A Test Using LIFFE Option Prices

The Determinants of Implied Volatility: A Test Using LIFFE Option Prices

Loan Recovery Monitoring Mechanism

The Intersection of Pensions and Enterprise Risk Management

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