Português
The Performance of Deterministic and Stochastic Interest Rate Risk Measures: Another Question of Dimensions?
Event Title
PFN 8th Finance Conference
Year (definitive publication)
2014
Language
English
Country
Portugal
More Information
Web of Science®
This publication is not indexed in Web of Science®
Scopus
This publication is not indexed in Scopus
Google Scholar
This publication is not indexed in Google Scholar
Abstract
The efficiency of traditional and stochastic interest rate risk measures is compared under one-, two-, and three-factor no-arbitrage Gauss-Markov term structure models, and for different immunization periods. The empirical analysis, run on the German Treasury bond market from January 2000 to December 2010, suggests that: i) Stochastic interest rate risk measures provide better portfolio immunization than the Fisher-Weil duration; and ii) The superiority of the stochastic risk measures is more evident for multi-factor models and for longer investment horizons. These findings are supported by a first-order stochastic dominance analysis, and are robust against yield curve estimation errors.
Acknowledgements
--
Keywords
Interest rate risk, Asset-liability management, Immunization strategies, Stochastic duration, Stochastic dominance
