Sensitivity of bond portfolio's behavior with respect to random movements in yield curve: A simulation study

Sensitivity of bond portfolio's behavior with respect to random movements in yield curve: A simulation study

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Article ID: iaor2002100
Country: Netherlands
Volume: 99
Issue: 1
Start Page Number: 267
End Page Number: 286
Publication Date: Dec 2000
Journal: Annals of Operations Research
Authors: , ,
Abstract:

The bond portfolio management problem is formulated as a stochastic program based on interest rate scenarios. The coefficients of the resulting program are subject to errors of various kind. In this paper, we complement theoretical stability results by simulation experiments. Adapting the approach of earlier research to problems based on perturbed yield curves, we then provide bounds for the optimality gap for various candidate first-stage solutions.

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