Are Immunization Strategies Effective? An Empirical Study Based on Quotations from MTS Poland Market

• Autorzy: Joanna Klimkowska
• Języki publikacji: EN

Abstrakty

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: M2 minimization strategy - based on the second order duration, and M1 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 M1 strategy over the A/2 strategy, reported by some researchers. (original abstract)

Słowa kluczowe

EN

Empirical researches; Variable interest rates; Portfolio analysis

PL

Badania empiryczne; Zmienne stopy procentowe; Analiza portfelowa

• Czasopismo: Roczniki Kolegium Analiz Ekonomicznych / Szkoła Główna Handlowa
• Rocznik: 2008
• Numer: nr 18 Modelling and analysis of automobile insurance and financial markets
• Strony: 165--181

Twórcy

autor

Joanna Klimkowska

• Szkoła Główna Handlowa w Warszawie

Bibliografia

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• Fong G., O. A. Vasicek (1984), A Risk Minimizing Strategy for Portfolio Immunization, Journal of Finance, Vol. 39, 1984.
• Ingersoll J. E. Jr., J. Skelton, R. L. Weil (1978), Duration Forty Years Later. Journal of Financial and Quantitative Analysis, November 1978.
• Khang C. (1979), Bond Immunization when Short Rates Fluctuate More than Long Rates. Journal of Financial and Quantitative Analysis, Vol. 14 (5), December 1979.
• Klimkowska J. (2007), Immunization Conditions and Immunization Risk for a Fixed-Income Portfolio. Paper presented at the FindEcon 2007 Conference, Łódź (to appear in print).
• Navalkha S., D. R. Chambers (1996), An Improved Immunization Strategy - M- Absolute. Financial Analysts Journal, September/October 1996.