In this work I deal with affine term structure models (ATSM), namely models where the valuation function P of a default-free zero-coupon bond (ZCB) is exponentially affine in a vector of stochastic state variables (or risk factors). After a short introduction to ATSMs, I will deal with ZCB's portfolio multifactor immunization. Non trivial problems arise. No special difficulties appears in finding a suitable immunization strategy in one factor models, but all become hard to deal withas soon as the dimensions of the model grow. The problem may admit no solution even with two factors only.
Immunization in an affine term structure framework
MAGGI, MARIO ALESSANDRO
2002-01-01
Abstract
In this work I deal with affine term structure models (ATSM), namely models where the valuation function P of a default-free zero-coupon bond (ZCB) is exponentially affine in a vector of stochastic state variables (or risk factors). After a short introduction to ATSMs, I will deal with ZCB's portfolio multifactor immunization. Non trivial problems arise. No special difficulties appears in finding a suitable immunization strategy in one factor models, but all become hard to deal withas soon as the dimensions of the model grow. The problem may admit no solution even with two factors only.File in questo prodotto:
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