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Hedging Against the Interest-rate Risk by Measuring the Yield-curve Movement

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  • Zhongliang Tuo

Abstract

By adopting the polynomial interpolation method, we propose an approach to hedge against the interest-rate risk of the default-free bonds by measuring the nonparallel movement of the yield-curve, such as the translation, the rotation and the twist. The empirical analysis shows that our hedging strategies are comparable to traditional duration-convexity strategy, or even better when we have more suitable hedging instruments on hand. The article shows that this strategy is flexible and robust to cope with the interest-rate risk and can help fine-tune a position as time changes.

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  • Zhongliang Tuo, 2013. "Hedging Against the Interest-rate Risk by Measuring the Yield-curve Movement," Papers 1312.6841, arXiv.org.
    • Handle: RePEc:arx:papers:1312.6841
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    References listed on IDEAS

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