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Advisor(s)
Abstract(s)
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.
Description
Keywords
Interest rate risk Asset-liability management Immunization strategies Stochastic duration Stochastic dominance
Pedagogical Context
Citation
Oliveira, Luís, João Pedro Vidal Nunes e Luís Malcato (2014). "The performance of deterministic and stochastic interest rate risk measures : Another Question of Dimensions?". Portuguese Economic Journal, 13(3):141-165
Publisher
Springer Verlag