PL EN


2008 | 18 | 165-181
Article title

ARE IMMUNIZATION STRATEGIES EFFECTIVE? AN EMPIRICAL STUDY BASED ON QUOTATIONS FROM MTS POLAND MARKET

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EN
Abstracts
EN
This paper presents results of an empirical study designed to test effectiveness of immunization strategies for a portfolio of default-free fixed-income bonds, where immunization strategy consists in selecting a portfolio for which the exposure of its terminal value to arbitrary interest rate changes is minimized. Two immunization strategies were tested: M(2) minimization strategy - based on the second order duration, and M(A) minimization strategy - based on the absolute value duration. Immunization strategies were applied to RP Treasury fixed-coupon bonds traded on the MTS Poland Market. Upon deriving the empirical term structure of interest rates, three types of portfolio have been constructed for 25 different investment horizons: one for each immunization strategy, while portfolios of the third type were composed of two bonds selected quasi-randomly. Next, relative changes in the terminal value of all portfolios have been calculated on three dates: one day after, one week after, and four weeks after portfolios were constructed. The two immunization strategies have performed equally well in terms of the relative decrease in the end-of-horizon value of portfolio, and much better than the quasi-random portfolios. Results, therefore, do not support claims of superiority of the M(A) strategy over the M(2) strategy, reported by some researchers. .
Year
Volume
18
Pages
165-181
Physical description
Document type
ARTICLE
Contributors
  • Joanna Klimkowska, Szkola Gl√≥wna Handlowa w Warszawie, Instytut Ekonometrii, al. Niepodleglosci 164, 02-554 Warszawa, Poland
References
Document Type
Publication order reference
Identifiers
CEJSH db identifier
09PLAAAA061627
YADDA identifier
bwmeta1.element.51e9b15e-bc01-3802-8072-a13e982b9334
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