Article1984

Hedging Interest Rate Risk with Futures Portfolios under Term Structure Effects

29 citations0/0 files storedThe Journal of Finance

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Risk Management in Financial Firms Stochastic processes and financial applications Financial Risk and Volatility Modeling

Abstract

ABSTRACT This study develops and tests a methodology for reducing interest rate risk in a fixed spot portfolio of assets and liabilities with default‐free cash flows. A minimum variance hedge is constructed by adding a portfolio of financial futures to the spot portfolio. Theorems are given which establish necessary and sufficient conditions for the existence of unique and zero‐variance hedges. The risk reduction characteristics of the methodology are demonstrated by an empirical analysis.

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1939Value and Capital 1979The Hedging Performance of the New Futures Markets 1979A continuous time approach to the pricing of bonds 1981Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital 2017From ‘Some Theoretical Problems Suggested by the Movements of Interest Rates, Bond Yield, and Stock Prices in the United States Since 1856’1971Taxation by Regulation 1952Review of the Principles of Life-office Valuations 2017Coping with the Risk of Interest-Rate Fluctuations: Returns to Bondholders From Naïve and Optimal Strategies*

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