Surplus Management with Embedded Option Properties under Interest Rate and Default Risks

• Main Authors: Jen-I Ho, 何仁譯
• Other Authors: chuang-Chang Chang
• Format: Others
• Language: en_US
• Published: 2001
• Online Access: http://ndltd.ncl.edu.tw/handle/36196994445489047621

碩士 === 國立中央大學 === 財務管理研究所 === 89 === Bierwag [1987] points out that there has been very little research into the default effects on duration-based strategies. This study compares two duration measures for evaluating the interest rate risk of a non-default-free bond with embedded option properties. Tzeng, Wang, and Soo [2000] demonstrate that linear programming can implement a new optimal immunization strategy to maximize the convexity gain. We follow this strategy but assume the financial institution has non-default-free bonds with embedded options on their balance sheets. Further, we illustrate a example to show the importance of the convexity gain.