IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v43y1997i2p198-205.html
   My bibliography  Save this article

On the Relative Importance of Duration Constraints

Author

Listed:
  • Jacob Paroush

    (Department of Economics, Bar-Ilan University, Ramat-Gan 52100, Israel)

  • Eliezer Z. Prisman

    (Faculty of Administrative Studies, York University, Toronto, Ontario, Canada M3J 1P3)

Abstract

This paper uncovers an implicit assumption, and its implications, made in the process of maximizing yield (or minimizing costs) subject to the duration constraints. Using linear programming results, it is shown that this technique is sensible only if the yield of a bond is a linear function of its duration measures. Utilizing this result the paper analyzes the relative importance of the duration constraints. Former studies have hinted that the first order duration may be the most important. It is shown here there is no reason to satisfy the first duration constraint with priority over satisfaction of a higher order duration constraint. Practitioners who use duration techniques for portfolio immunization must be aware of such an important counter-intuitive result.

Suggested Citation

  • Jacob Paroush & Eliezer Z. Prisman, 1997. "On the Relative Importance of Duration Constraints," Management Science, INFORMS, vol. 43(2), pages 198-205, February.
    • Handle: RePEc:inm:ormnsc:v:43:y:1997:i:2:p:198-205
    DOI: 10.1287/mnsc.43.2.198
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.43.2.198
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.43.2.198?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Balbas, Alejandro & Ibanez, Alfredo, 1998. "When can you immunize a bond portfolio?," Journal of Banking & Finance, Elsevier, vol. 22(12), pages 1571-1595, December.
    2. Montagut, Esperanza H., 2004. "Hedging bond portfolios versus infinitely many ranked factors of risk," DEE - Working Papers. Business Economics. WB wb043312, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    3. Sergio Ortobelli & Sebastiano Vitali & Marco Cassader & Tomáš Tichý, 2018. "Portfolio selection strategy for fixed income markets with immunization on average," Annals of Operations Research, Springer, vol. 260(1), pages 395-415, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:43:y:1997:i:2:p:198-205. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.