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The immunisation performance of minimum M-square portfolios

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  • Senay Agca

Abstract

We examine the immunisation performance of minimum M-square portfolios using a Monte-Carlo simulation in which interest rates evolve according to an exponentially decaying volatility Heath–Jarrow–Morton (1992) model. We consider both duration, and duration and convexity matching immunisation strategies. Our results show that the immunisation performance of minimum M-square portfolios is very sensitive to the holding period. Minimum M-square portfolios have the best performance for short holding periods. However, all minimum M-square portfolios have good immunisation performance irrespective of the risk measure used, especially with duration and convexity matching strategies.

Suggested Citation

  • Senay Agca, 2007. "The immunisation performance of minimum M-square portfolios," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 1(4), pages 327-345.
    • Handle: RePEc:ids:ijrevm:v:1:y:2007:i:4:p:327-345
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